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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.

Suggested Citation

  • Lijesen, Mark G., 2004. "Adjusting the Herfindahl index for close substitutes: an application to pricing in civil aviation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(2), pages 123-134, March.
    • Handle: RePEc:eee:transe:v:40:y:2004:i:2:p:123-134
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    Cited by:

    1. 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.
    2. Ramnath K. Chellappa & V. Sambamurthy & Nilesh Saraf, 2010. "Competing in Crowded Markets: Multimarket Contact and the Nature of Competition in the Enterprise Systems Software Industry," Information Systems Research, INFORMS, vol. 21(3), pages 614-630, September.
    3. 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 -.
    4. Zhang, Qiong & Yang, Hangjun & Wang, Qiang & Zhang, Anming & Zhang, Yahua, 2020. "Impact of high-speed rail on market concentration and Lerner index in China's airline market," Journal of Air Transport Management, Elsevier, vol. 83(C).
    5. Lieshout, Rogier & Malighetti, Paolo & Redondi, Renato & Burghouwt, Guillaume, 2016. "The competitive landscape of air transport in Europe," Journal of Transport Geography, Elsevier, vol. 50(C), pages 68-82.
    6. Bian, Junsong & Li, Kevin W. & Guo, Xiaolei, 2016. "A strategic analysis of incorporating CSR into managerial incentive design," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 86(C), pages 83-93.
    7. Feng, Hongxiang & Grifoll, Manel & Yang, Zhongzhen & Zheng, Pengjun & Martin-Mallofre, Agustí, 2020. "Visualization of container throughput evolution of the Yangtze River Delta multi-port system: the ternary diagram method," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    8. Rau, Philipp & Spinler, Stefan, 2017. "Alliance formation in a cooperative container shipping game: Performance of a real options investment approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 155-175.
    9. Huang, Zhibin & Yong, Jianming & Ma, Wenliang & Chen, Mengying & Xiong, Zihan & Shrestha, Anup, 2022. "Internet penetration and airline pricing: Evidence from China," Transport Policy, Elsevier, vol. 123(C), pages 104-111.
    10. Yusak Susilo & Kay Axhausen, 2014. "Repetitions in individual daily activity–travel–location patterns: a study using the Herfindahl–Hirschman Index," Transportation, Springer, vol. 41(5), pages 995-1011, September.
    11. Koopmans, Carl & Lieshout, Rogier, 2016. "Airline cost changes: To what extent are they passed through to the passenger?," Journal of Air Transport Management, Elsevier, vol. 53(C), pages 1-11.
    12. Lieshout, Rogier & Matsumoto, Hidenobu, 2012. "New international services and the competitiveness of Tokyo International Airport," Journal of Transport Geography, Elsevier, vol. 22(C), pages 53-64.
    13. Oliveira, Alessandro V.M. & Lohmann, Gui & Costa, Tiago G., 2016. "Network concentration and airport congestion in a post de-regulation context: A case study of Brazil 2000–2010," Journal of Transport Geography, Elsevier, vol. 50(C), pages 33-44.
    14. 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.
    15. van den Bogaard, Julien E. & Lijesen, Mark G., 2019. "Pricing of imperfect substitutes: The next flight is not the same flight," Research in Transportation Economics, Elsevier, vol. 78(C).
    16. Kordanuli, Bojana & Barjaktarović, Lidija & Jeremić, Ljiljana & Alizamir, Meysam, 2017. "Appraisal of artificial neural network for forecasting of economic parameters," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 515-519.
    17. Lieshout, Rogier, 2012. "Measuring the size of an airport’s catchment area," Journal of Transport Geography, Elsevier, vol. 25(C), pages 27-34.
    18. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2020. "Evaluating the price effects of two airline mergers in China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 141(C).
    19. 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.
    20. Jin-Ru Yen & Jing-Cing Chen & Dong-Hua Wang, 2008. "The Change in Structure of Taiwan's Domestic Air Market before and after Deregulation," Transportation Planning and Technology, Taylor & Francis Journals, vol. 31(6), pages 663-679, September.

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