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Airline Schedule Competition: Product-Quality Choice in a Duopoly Model

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  • Jan K. Brueckner
  • Ricardo Flores-Fillol

Abstract

This paper presents a simple model of airline schedule competition that circumvents the complexities of the spatial approach used in earlier papers. Consumers choose between two duopoly carriers, each of which has evenly spaced flights, by comparing the combinations of fare and expected schedule delay that they offer. In contrast to the spatial approach, the particular departure times of individual flights are thus not relevant. The model generates a number of useful comparative-static predictions, while welfare analysis shows that equilibrium flight frequencies tend to be inefficiently low.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-05/cesifo1_wp1731.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1731.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1731

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Keywords: airline; airline schedule; airline schedule competition; transportation;

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References

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  1. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. 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.
  3. Jan K. Brueckner, 2004. "Network Structure and Airline Scheduling," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 52(2), pages 291-312, 06.
  4. Encaoua, David & Moreaux, Michel & Perrot, Anne, 1996. "Compatibility and competition in airlines demand side network effects," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 14(6), pages 701-726, October.
  5. Brueckner, Jan K & Whalen, W Tom, 2000. "The Price Effects of International Airline Alliances," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 43(2), pages 503-45, October.
  6. Brueckner, Jan K. & Girvin, Raquel, 2008. "Airport noise regulation, airline service quality, and social welfare," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 42(1), pages 19-37, January.
  7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  8. 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.
  9. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 345-53, September.
  10. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  11. Panzar, John C, 1979. "Equilibrium and Welfare in Unregulated Airline Markets," American Economic Review, American Economic Association, American Economic Association, vol. 69(2), pages 92-95, May.
  12. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(2), pages 229-31, June.
  13. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1145-50, September.
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