We examine the impact of capital structure on product pricing decisions. Our model predicts that the relation between leverage and prices hinges upon the product’s price elasticity of demand and competition from rivals. Leverage increases should result in prices of inelastic products rising but prices of elastic products falling. The elasticity threshold around which the impact of leverage switches directions declines as competition intensifies. We empirically test our model’s predictions by examining how a recent change in accounting standards governing the reporting of operating leases impacts ticket prices of airlines, an industry disproportionately influenced by the rule change. Although firm fundamentals remain constant, the reporting change increases the debt capacity of airlines, particularly those with high variable lease commitments. Differences-in-differences tests exploiting the cross-sectional variation in variable lease commitments of airlines confirm our model’s predictions.