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Competitive responses to low cost carrier entry

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  • Windle, Robert
  • Dresner, Martin
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    Abstract

    Recent research has found that the entrance of a low cost carrier leads to lower prices on routes it has entered. This paper extends this analysis by examining the impact of route entry by a discount carrier, ValuJet into an established carrier's hub, Delta, and by examining price changes on routes not entered by the low cost carrier. We found that Delta lowered its fares on competitive routes terminating in Atlanta and on routes flowing through its Atlanta hub in response to competition by ValuJet. We did not find evidence that Delta increased fares on non-competitive routes (either those terminating in Atlanta or flowing through Atlanta) to compensate for lost revenues on the competitive routes. This final result runs counter to the conjectures of the DOT and supports the argument that firms practice rational economic pricing in their hub-and-spoke networks. ©

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part E: Logistics and Transportation Review.

    Volume (Year): 35 (1999)
    Issue (Month): 1 (March)
    Pages: 59-75

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    Handle: RePEc:eee:transe:v:35:y:1999:i:1:p:59-75

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    Cited by:
    1. Evangelho, Fabio & Huse, Cristian & Linhares, Alexandre, 2005. "Market entry of a low cost airline and impacts on the Brazilian business travelers," Journal of Air Transport Management, Elsevier, vol. 11(2), pages 99-105.
    2. Harumi Ito & Darin Lee, 2003. "Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry," Working Papers 2003-22, Brown University, Department of Economics.
    3. Squalli, Jay, 2014. "Airline passenger traffic openness and the performance of Emirates Airline," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 138-145.
    4. Harumi Ito & Darin Lee, 2003. "Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future," Working Papers 2003-12, Brown University, Department of Economics.
    5. Elwakil, Omar S. & Dresner, Martin, 2013. "Low-cost carriers and Canadian traffic generation at US border airports," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 68-72.
    6. Zhang, Shengrun & Derudder, Ben & Witlox, Frank, 2013. "The impact of hub hierarchy and market competition on airfare pricing in US hub-to-hub markets," Journal of Air Transport Management, Elsevier, vol. 32(C), pages 65-70.
    7. Fu, Xiaowen & Homsombat, Winai & Oum, Tae H., 2011. "Airport–airline vertical relationships, their effects and regulatory policy implications," Journal of Air Transport Management, Elsevier, vol. 17(6), pages 347-353.
    8. Marco Alderighi & Alessandro Cento, 2003. "European Airlines Conduct after September 11th," ERSA conference papers ersa03p431, European Regional Science Association.
    9. Homsombat, Winai & Lei, Zheng & Fu, Xiaowen, 2014. "Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 1-16.
    10. Bhadra, Dipasis & Kee, Jacqueline, 2008. "Structure and dynamics of the core US air travel markets: A basic empirical analysis of domestic passenger demand," Journal of Air Transport Management, Elsevier, vol. 14(1), pages 27-39.
    11. Daraban, Bogdan & Fournier, Gary M., 2008. "Incumbent responses to low-cost airline entry and exit: A spatial autoregressive panel data analysis," Research in Transportation Economics, Elsevier, vol. 24(1), pages 15-24.
    12. Jia Yan & Xiaowen Fu & Tae Oum, 2008. "Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines," Working Papers 2008-21, School of Economic Sciences, Washington State University.
    13. Xiaowen Fu & Mark Lijesen & Tae H. Oum, 2006. "An Analysis of Airport Pricing and Regulation in the Presence of Competition Between Full Service Airlines and Low Cost Carriers," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 40(3), pages 425-447, September.
    14. Oliveira, Alessandro V.M., 2008. "An empirical model of low-cost carrier entry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(4), pages 673-695, May.
    15. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
    16. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
    17. Lijesen, Mark G. & Rietveld, Piet & Nijkamp, Peter, 2001. "Hub premiums in European civil aviation," Transport Policy, Elsevier, vol. 8(3), pages 193-199, July.
    18. Lara Gitto & Fulvio Minervini, 2007. "The Performance of European Full Service Airlines after Liberalisation: An Econometric Analysis," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 105-122, January-F.
    19. Mark G. Lijesen & Piet Rietveld & Peter Nijkamp, 2000. "Do European Carriers dominate their Hubs?," Tinbergen Institute Discussion Papers 00-071/3, Tinbergen Institute.
    20. Jorge Valido & M. Pilar Socorro & Francesca Medda, 2013. "DYPES: Vertical differentiation, schedule delay and entry deterrence: Low cost vs. full service airlines," Working Papers 2013-05, FEDEA.
    21. Elwakil, Omar Sherif & Windle, Robert J. & Dresner, Martin E., 2013. "Transborder demand leakage and the US–Canadian air passenger market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 57(C), pages 45-57.
    22. Xavier Fageda, 2014. "“What hurts the dominant airlines at hub airports?”," IREA Working Papers 201414, University of Barcelona, Research Institute of Applied Economics, revised May 2014.

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