Journal Article

Determinants of \Sticky Costs\: An Analysis of Cost Behavior using United States Air Transportation Industry Data

Cannon, James N.

2014

Overview

This paper examines determinants of sticky cost behavior, costs that increase faster than they decrease as demand fluctuates. The majority of the literature infers that sticky costs arise because managers retain idle capacity as demand falls, but add capacity as demand grows. I use United States Air Transportation industry data to confirm that managers do retain idle capacity when demand falls. However, I also find that sticky costs arise because managers lower selling prices to utilize existing capacity when demand falls, but add capacity (rather than raise selling prices) when demand grows. Finally, I find that sticky costs arise because managers incur more cost when adding capacity as demand grows than they incur when they add capacity as demand falls. Conversely, I find evidence of anti-sticky costs that occur because managers save more cost by removing capacity when demand falls than they save by removing capacity when demand grows.

• Publisher: American Accounting Association
• Subject: Air transportation industry / Aircraft / Airlines / Capacity costs / Cost accounting / Cost analysis / Cost estimates / Costs / Demand / Demand analysis / Determinants / Economic fluctuations / Economic models / Managers / Marginal costs / Prices / Revenue / Sales volume / Selling price / Studies / Transport / Transportation / U.S.A / Unit costs