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Does Competition Increase Quality? Evidence from the US Airline Industry

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Abstract: In this paper we study the impact of competition on the provision of quality in the US airline industry. Using changes in competition triggered by LCC entry and airline mergers, we find that an increase in competition increases the provision of quality of major incumbent and non-merging airlines by increasing the number of flights and seats available in a route as well as improving their on-time performance with less frequent cancellations and flight delays. Contrary to previous findings in the literature, our evidence suggests that an increase in competition unambiguously increases consumer surplus since prices go down and quality goes up.

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