Appendix : Market Structure and Competition in Airline Markets (original) (raw)
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Online Supplement : Market Structure and Competition in Airline Markets
2016
This section closely follows Ciliberto and Tamer (2009) (henceforth CT), and we refer to that paper for further reading. We provide a set of sufficient conditions that guarantee point identification of the model parameters in equation (1) in the main text. These conditions are natural in this context and rely on large support regressors. Our inference methods do not require that these conditions be satisfied as the moment inequalities adapt to partial identification, but we give them here to give intuition as to what exogenous variation might be helpful for gaining identification.
Market Structure and Competition in Airline Markets
SSRN Electronic Journal, 2016
We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions in oligopolistic markets while allowing for correlations between unobserved fixed costs, marginal costs, and demand shocks. Firms' decisions to enter a market are based on whether they will realize positive profits from entry. We use our framework to quantitatively account for this selection problem in the pricing stage. We estimate this model using crosssectional data from the US airline industry. We find that not accounting for endogenous entry leads to overestimation of demand elasticities. This, in turn, leads to biased markups, which has implications for the policy evaluation of market power. Our methodology allows us to study how firms optimally decide entry/exit decision in response to a change in policy. We simulate a merger between American and US Airways and we find: i) the price effects of a merger can be strong in concentrated markets, but post-merger entry mitigates these effects; ii) the merged firm has a strong incentive to enter new markets; iii) the merged firm faces a stronger threat of entry from rival legacy carriers, as opposed to low cost carriers.
Competition and price dispersion in the airline markets
Applied Economics, 2014
We use two ticket-level data sets on one-way domestic flights for the US airlines to examine the potentially nonlinear relationship between price dispersion and three forms of competition: inter-firm, inter-flight and frequency competitions. The linear relationship is rejected at any conventional significance levels. In particular, there is an S-shaped relationship between market concentration and price dispersion. This can be a reason for the mixed results in the literature. Roughly speaking, the interflight and frequency competitions have opposite effects on price dispersion. Finally, in general, the size of aircraft has a positive effect on price. However, for very large aircraft, the relationship becomes negative.
Airline Pricing Behaviour Under Limited Intermodal Competition
2012
This paper explores airline pricing behaviour dealing with two issues. The …rst is to measure the extent to which intramodal competition in ‡uences fares charged to travellers. The second is to shed light on fares'intertemporal pro…le to verify if airlines undertake intertemporal price discrimination (IPD) strategies and whether IPD is of monopolistic-type or competitive-type. Di¤erently from past contributions, we study airline pricing behaviour removing the in ‡uence of intermodal competition. To this scope, we focus on the southern Italian market since it is less accessible by other modes and thus, air transport-related competition prevails. Our results claim that when the intramodal competition reduces, airlines apply higher fares as they exploit the greater market power arising from more concentrated market structure. Further, we …nd evidence that airlines do undertake IPD strategies -the intertemporal pro…le of fares follows a J-curve -but that they do so in more competitive markets. for useful comments and insights on earlier versions. The authors would also like to thank participants at 39th EARIE Conference, 14th SIET Conference, RCEA Workshop on "The economics and management of leisure, travel and tourism" and 32th AISRe Conference for very helpful comments and suggestions. All remaining errors are ours.
Journal of Abant Social Sciences, 2023
The purpose of the study is to analyse the market structure in airline markets. The research examined at market structures in the aviation sector for the years 2011 to 2020 in both developing and developed economies.. We analysed market concentration and market structure of many countries for the period 2011-2020. Additionally, we examined the deterioration caused by the Covid-19 pandemic in the airline market structure. In the study, we used different analyses such as CR4, CR8 and Herfindahl-Hirschman index. The study's conclusions show that the spread of Covid-19 has had a significant impact on airline firms, and market structures have started to shift in several nations.. The level of competition and the market structure differed among countries. Due to the Covid-19, while some countries experienced more intense markets, other countries experienced markets that are more competitive.
Does Price Matter? Price and Non-price Competition in the Airline Industry
2004
This paper studies passengers' choice behavior in air travel. Products are defined as a unique combination of airline and flight itinerary while markets are defined as a directional round-trip air travel between an origin and a destination city. A structural econometric model is used to investigate the relative importance of price (airfare) and non-price product characteristics in explaining passengers' choice of these differentiated products. The results suggest that, on average, prices may not be as important as we think in explaining passengers' choice behavior among alternative products. Non-price characteristics which may include convenience of flight schedules, frequent flyer programs, the quality of in-flight service, among other things, seem to be much more important in explaining passengers' choice behavior. As such, the results have implications for the focus of antitrust policies in the airline industry when assessing the impact of mergers, alliances, or o...
This paper develops an empirical model of online airfare determinants to inspect the impact of the entry of a low-cost carrier (LCC). In particular, we investigate whether the increased competition from a recently established LCC induces major carriers to respond in two competitive dimensions: pricing and distribution. We utilize an original database of airfares collected from the website of an online travel agent (OTA) comprising the domestic airport-pairs of the most populous metropolitan area in Brazil. We test whether incumbents reshape their airfare temporal profiles in an attempt to attract the price-sensitive passengers who constitute the target market of the newcomer. We find evidence that incumbents increase their airfare availability on the OTA by 11% and reduce fares by between 15% and 23% for advance purchases made approximately two months prior to departure. Our results suggest that LCC entry partially spoils the existing market segmentation schemes of incumbents, forcing them to revise their distribution management strategy, simplify their fare structure and migrate from a non-monotonic to a weakly monotonic price curve.