Chapter 5 Distribution of Airline Tickets: A Tale of Two Market Structures

The vertical relationships literature has considered situations where both producers and retailers have a degree of market power. On one hand, retailers may have certain freedom in deciding what price to charge to the final consumers. On the other hand, large retailers may also pressurize producers (Wal-Mart is a classic example; see also Comanor and Rey (2000) for a formal treatment of this topic). At the same time, producers may pressurize retailers via resale price maintenance. The interplay of producers' and retailers' bargaining power, in addition to the structure (both horizontal and vertical) of product and distribution markets, eventually determine the sticker price faced by an unsuspecting consumer.