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Airline ambidextrous competition under an emissions trading scheme – A reference-dependent behavioral perspective

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  • Sheu, Jiuh-Biing

Abstract

This study presents a reference-dependent Hotelling model for analyzing airline competition in pricing and green transportation investment, as well as the resulting financial performance under the European Union emission trading scheme. One feature of the proposed methodology is that it embeds psychological benefits/costs of consumers to characterize consumer attitudes to the increases in airline fare adjustments and improvements in green transportation. This study then investigates the equilibrium solutions for airfare adjustment and green transportation investment margins in different scenarios. The analytical results reveal specific operational conditions under which a cost-efficient airline can gain supreme competitive advantage by increasing both airfare and green transportation investment margins beyond the increases made by competitors under the emission trading scheme, whereas certain specific conditions may favor a cost leadership strategy. Conversely, a cost-inefficient airline can compete with a cost-efficient airline in both market share and profitability using the green transportation investment-differentiation strategy, particularly when consumers perceive the airfare difference as equaling the increased psychological benefit induced by the airline’s green effort.

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  • Sheu, Jiuh-Biing, 2014. "Airline ambidextrous competition under an emissions trading scheme – A reference-dependent behavioral perspective," Transportation Research Part B: Methodological, Elsevier, vol. 60(C), pages 115-145.
    • Handle: RePEc:eee:transb:v:60:y:2014:i:c:p:115-145
    DOI: 10.1016/j.trb.2013.12.008
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    3. Vedant Singh, 2016. "Perceptions of emission reduction potential in air transport: a structural equation modeling approach," Environment Systems and Decisions, Springer, vol. 36(4), pages 377-403, December.
    4. Wang, Hua & Meng, Qiang & Zhang, Xiaoning, 2014. "Game-theoretical models for competition analysis in a new emerging liner container shipping market," Transportation Research Part B: Methodological, Elsevier, vol. 70(C), pages 201-227.

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