In: Statistics and Probability
In this set of questions, we utilize the dataset from
“Revisiting the Relationship between Competition
and Price Discrimination” written by Chandra and Lederman (2018) to
look at some interesting
questions and help you gain some knowledge in the airline industry
and learn some econometric
methods.
The Herfindahl index (also known as Herfindahl–Hirschman Index, or
herf in this dataset) is a
measure of the size of firms in relation to the industry and an
indicator of the amount of competition
among them. (From Wikipedia). A route served by just one single
carrier is considered a monopoly
route, having a HHI of 1. Also note that in this dataset herf is
already in percentage terms (the
maximum is 1 = 100%). Be careful of the units in your
interpretations and calculations. Look at the
Stata output below and answer the following questions.
Some additional variables include totpass (total number of
passengers), num_car_dir (the
number of direct rivals, or competitors), coach_fare (economy class
average fare), and biz_fare
(business class average fare). Please use these information and
answer some questions.
Exhibit A:
Exhibit B:
biz_fare 3,144 867.7217 459.3443 88.74747 2648
coach_fare 11,064 252.9349 102.1054 64.98026 738.9227
num_car_dir 11,064 .8325199 .6392407 0 3
totpass 11,064 10299.42 12526.24 402 106526
herf 11,064 .695997 .2235478 .2529875 1
Variable Obs Mean Std. Dev. Min Max
99% 2218.451 2648 Kurtosis 3.239269
95% 1693.641 2641 Skewness .6624805
90% 1481.809 2641 Variance 210997.2
75% 1149.276 2515.4
Largest Std. Dev. 459.3443
50% 852.9616 Mean 867.7217
25% 476.6543 170.6522 Sum of Wgt. 3,144
10% 302.2302 157.7417 Obs 3,144
5% 245.9518 89.56604
1% 205.7657 88.74747
Percentiles Smallest
(mean) avfare
Exam 3 – Econ 215 (Chuang)
Page 4
1. (2 points) What is the lowest Herfindahl-Hirschman Index in
the dataset?
2. (2 points) What is the highest number of direct rivals in the
dataset?
3. (3 points) What is the interquartile range for this “average
fare” as depicted in Exhibit B? How do
you know that?
4. (3 points) Daniella has heard that on average the business class
fares are more than double the
prices of economy class tickets. Since you are smart, she is
counting on you to verify this for her
using the current dataset. What would be your response to her in
this case using Exhibits A and B?
5. (3 points) Carly is taking Econ 215 and doing some analyses
using this dataset. However, she
forgets what Exhibit B is about. She sees that Exhibit B is the
average fare of something, but she
can’t remember if this average fare is for economy class or for
business class. Can you tell her what
this average fare is for? Why?
6. (4 points) It turns out that Carly also loses her original Stata
codes on how you could generate such
results shown in Exhibit B. Since you are smart, can you provide
her the single line of code that
would generate the output in Exhibit B (assuming the dataset has
been loaded successfully)?
1. What is the lowest Herfindahl-Hirschman Index in the dataset?
Answer: Minimum for Herfindahl-Hirschman Index is 0.253
2. What is the highest number of direct rivals in the dataset?
Answer : the highest number of direct rivals in the dataset is 3
3. What is the interquartile range for this “average fare” as depicted in Exhibit B? How do you know that?
Answer: Interquartile range is Q3-Q1 = 1149.276 - 476.6543 = 672.6217
4. Daniella has heard that on average the business class fares are more than double the prices of economy class tickets. Since you are smart, she is counting on you to verify this for her using the current dataset. What would be your response to her in this case using Exhibits A and B?
Yes, the fare for business fares is more than double the price of economy class.