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Deregulation of Scandinavian Airlines: A Case Study of the Oslo-Stockholm Route

In: Empirical Studies of Strategic Trade Policy

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  • Victor D. Norman
  • Siri Strandenes

Abstract

The paper develops a numerical simulation model to assess the possible consequences of competition on inter-Scandinavian air routes, using the Oslo-Stockholm route as a case. In the model, demand for air transportation depends on the price and frequency, reflecting consumer preferences for travel and for time of departure. Initially, the market is taken to be an SAS monopoly, so the model is calibrated to estimates of prices and costs, data for demand, and to the first-order conditions for a monopolist. The model is then used to simulate symmetric, non-cooperative many-firm equilibria, described as a simultaneous Bertrand equilibrium in pricing and Cournot equilibrium in the number of flights offered. The simulation experiments indicate very substantial efficiency gains from competition.

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This chapter was published in:

  • Paul Krugman & Alasdair Smith, 1994. "Empirical Studies of Strategic Trade Policy," NBER Books, National Bureau of Economic Research, Inc, number krug94-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8677.

    Handle: RePEc:nbr:nberch:8677

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    Cited by:
    1. Joseph A. Clougherty & Anming Zhang, 2008. "Domestic Rivalry and Export Performances: Theory and Evidence from International Airline Markets," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) SP II 2008-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Schipper, Youdi & Rietveld, Piet & Nijkamp, Peter, 2007. "Frequency competition and environmental costs: An application to European air transport liberalization," Socio-Economic Planning Sciences, Elsevier, Elsevier, vol. 41(3), pages 208-223, September.
    3. Wei, Wenbin & Hansen, Mark, 2006. "An aggregate demand model for air passenger traffic in the hub-and-spoke network," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 40(10), pages 841-851, December.
    4. Carlsson, Fredrik, 2002. "Price and Frequency Choice under Monopoly and Competition in Aviation Markets," Working Papers in Economics, University of Gothenburg, Department of Economics 71, University of Gothenburg, Department of Economics.
    5. Schipper, Youdi & Rietveld, Piet & Nijkamp, Peter, 2003. "Airline deregulation and external costs: a welfare analysis," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 37(8), pages 699-718, September.
    6. Reimer, Jeffrey J. & Stiegert, Kyle W., 2006. "Evidence on Imperfect Competition and Strategic Trade Theory," Staff Paper Series, University of Wisconsin, Agricultural and Applied Economics 498, University of Wisconsin, Agricultural and Applied Economics.
    7. Schipper, Youdi & Nijkamp, Peter & Rietveld, Piet, 2007. "Deregulation and welfare in airline markets: An analysis of frequency equilibria," European Journal of Operational Research, Elsevier, Elsevier, vol. 178(1), pages 194-206, April.
    8. Stiegert, Kyle W. & Wang, Shinn-Shyr, 2003. "Imperfect Competition And Strategic Trade Theory: What Have We Learned," Working Papers, International Agricultural Trade Research Consortium 14589, International Agricultural Trade Research Consortium.
    9. Youdi Schipper & Piet Rietveld & Peter Nijkamp, 1998. "Deregulation and Schedule Competition in Simple Airline Networks," ERSA conference papers ersa98p205, European Regional Science Association.

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