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Adjusting the Herfindahl index for close substitutes: an application to pricing in civil aviation

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  • Lijesen, Mark G.

Abstract

The Herfindahl-Hirschman index (HHI) is a well known concentration measure, which is both widely used and widely criticized. The main shortcoming of the HHI is its sensitivity for the relevant market definition, in terms of both geographical boundaries and in terms of product homogeneity. In this paper we develop an adjusted version of the HHI that accounts for close substitutes. We test the adjusted HHI empirically for civil aviation, using airfare data. Our results suggest that the adjusted index generates better results than the traditional indicator.

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Bibliographic Info

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

Volume (Year): 40 (2004)
Issue (Month): 2 (March)
Pages: 123-134

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Handle: RePEc:eee:transe:v:40:y:2004:i:2:p:123-134

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Keywords: Civil aviation Market power Herfindahl index;

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Cited by:
  1. Alexander M. Goulielmos & Giannis Sitzimis, 2012. "Measuring Market Concentration in the Aegean Ferry System," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 62(1-2), pages 7-27, January -.
  2. Huber, Hans, 2009. "Spatial structure and network behaviour of strategic airline groups: A comparison between Europe and the United States," Transport Policy, Elsevier, vol. 16(4), pages 151-162, August.
  3. T.V.S. Ramamohan Rao, 2012. "Firm Specific Monopoly Power in Differentiated Oligopoly," Journal of Quantitative Economics, The Indian Econometric Society, vol. 10(1), pages 85-97, January.
  4. Huber, Hans, 2009. "Comparing spatial concentration and assessing relative market structure in air traffic," Journal of Air Transport Management, Elsevier, vol. 15(4), pages 184-194.

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