The role of network topology in competition and ticket pricing in air transportation: Evidence from Brazil

This paper investigates how the structure of the air transportation network affects air ticket prices in Brazil. Airlines serve specific airports in the vast Brazilian territory and, consequently, have unique air transportation network structures. Using more than 40 million airline-specific commercial flights, we extract topological patterns from these networks using complex network measurements. We then propose an economic meaning for these measures in the context of air transportation. Using microeconometric panel-data estimation, we find that the airports’ degree of substitutability (clustering coefficient) and peripheral location (authority score) are associated with lower average airfare prices. In contrast, the convenience of transportation (degree), measured by the number of different cities that an airport serves, and centrality (closeness) are attributes that raise the average price. Air convenience pricing is more pronounced at airports located inland than at capitals. We also look at how the airline-specific network structure affects the well-documented positive relationship between market power and air ticket prices. The relationship between local market power and the ticket price is stronger at airports located in inland municipalities. Our results suggest that public policies encouraging competition at inland airports are crucial for maintaining prices at adequate levels.