Competition behavior in service frequency for U.S. airlines

Real-life service frequency data from markets with duopoly or oligopoly structure in the U.S. domestic airline industry is analyzed to understand whether the nature of airline competition is similar to one described by Hotelling’s law, as applied to a perishable goods market. The paired-samples t test statistic technique is employed to analyze 43,380 observations collected from thirty days worth of daily service frequencies in 1,000 largest U.S. city-pair markets. The results indicate that minimum differentiation competition behavior indeed prevails in duopoly markets. Firms are willing to locate far from the dominant player to capture consumer surplus in oligopoly markets.