The impacts of liberalization on competition on an air shuttle market (original) (raw)
Related papers
The impacts of liberalisation on a Brazilian air shuttle market
2003
This paper aims at assessing the impacts of recent economic liberalisation on an important subset of the Brazilian airline industry: the air shuttle market on the route Rio de Janeiro -São Paulo, a pioneer service created in 1959. In order to estimate structural relationships of the competition model, a product differentiated setting with conduct parameter was designed.
A Competition Model for A Brazilian Air Shuttle Market
2003
This paper aims at developing a competition model for a relevant subset of the Brazilian airline industry: the air shuttle market on the route Rio de Janeiro -São Paulo, a pioneer service created in 1959. The competition model presented here contains elements of both vertical product differentiation and representative consumer. I also use the conduct parameter approach to infer about the behaviour of airlines in the market under three situations: a quasideregulation process (from 1998 on), two price war events (1998 and 2001), and a shock in costs due to currency devaluation (1999). Results permitted making inference on the impacts of liberalisation on competition and investigating an alleged collusive behaviour of 1999.
Competition and deregulation: Do air passengers get the benefits?
Transportation Research Part A: Policy and Practice, 2006
It is well established that increased airline competition can produce benefits to passengers, and it is generally assumed that airport deregulation, as part of the same process of liberalisation, will produce similar benefits. But this paper shows that this may not be the case. The potential benefits to passengers from increased airline competition will in general be partially absorbed by increased airport charges at unregulated airports, and in some circumstances this may even result in increases in overall charges, not reductions. This problem is sometimes tackled by putting regulated price caps on aeronautical services, but if these are not extended to the complementary commercial services (such as retailing) which airports also provide then the adverse effects may still occur. Similarly, unilateral deregulation leading to increased airport competition in one country may just lead to the majority of the gains going abroad. Overall, the conclusion is that claims of big passenger gains from deregulation and competition may be exaggerated, and achieving these gains in reality may need subtle and quite far-reaching government intervention.
Air transport industry has been going through a worldwide transformation in the last decade. Aviation liberalization, started first in US in 1978, followed by EU through 1990s, has also caught on in many developing countries. Flag-carrier airlines previously enjoying monopoly rights in these countries have now faced stiff competition from lean start-up airlines with a simple product. These so called Low Cost Carriers, LCCs, have been instrumental in radically changing air travel in liberalized domestic markets. We build a simple model to analyze the effects of LCC entry to a previously monopolistic domestic air travel market. The airlines compete on both costs and service quality. Even though the model is quite basic, its predictions are consistent with the experience: a substantial fall in airline fares, a dramatic growth in the share of flying public and an increase in LCC market share.
Measuring Conduct and Cost Parameters in the Spanish Airline Market
SSRN Electronic Journal, 2000
This paper estimates a model of airline competition for the Spanish air transport market. I test the explanatory power of alternative oligopoly models with capacity constraints. In addition, I analyse the degree of density economies. Results show that Spanish airlines conduct follows a price-leadership scheme so that it is less competitive than the Cournot solution. I also find evidence that thin routes can be considered as natural monopolies.
The performance of european full service airlines after liberalisation: An econometric analysis
Rivista di Politica Economica, 2007
Deregulation in the airline industry has forced full service airlines to change their strategies in order to respond to increasing challenges. In this paper, an econometric analysis of the possible determinants of economic performance of full service airlines after liberalisation has been carried out. A fixed effects model was used and the performance of ten European full service airlines has been analysed over a period of 11 years. Variables considered in this analysis were the number and type of aircraft in the fleet, the number and type of destinations, investments, number of employees and alliances. The analysis suggests that full service airlines should adjust fleet composition and re-organise operations on their routes in order to react to the increasingly competitive environment.
Measuring Conduct and Cost Parameters in the Spanish Air Transport Market
2004
This paper estimates a model of airline competition for the Spanish air transport market. I test the explanatory power of alternative oligopoly models with capacity constraints. In addition, I analyse the degree of density economies. Results show that Spanish airlines conduct follows a price-leadership scheme so that it is less competitive than the Cournot solution. I also find evidence that thin routes can be considered as natural monopolies.
Competition in a deregulated air transportation market
Under deregulation, airlines developed hub-and-spoke (HS) networks enabling them to aggregate demand, increase frequency, reduce airfares and prevent entry into the marketplace. This research evaluates airline profit based on micro- economic theory of behaviour under deregulation. Through a two-stage Nash best-response game, equilibria in the air transportation industry is sought to evaluate the most profitable HS network for an airline to survive in a deregulated environment. In the first stage of the game, an integer linear program aids in generating potential networks. In the second stage, a nonlinear mathematical program maximizes profits for each airline, based on the networks chosen by all participants. The variables of the mathematical program include frequency, plane size and airfares. In an illustrative example, both monopoly and duopoly solutions are attainable as a function of demand.
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.