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The Entry of Low-Cost Airlines: Price Competition in the European Airline Market

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Author Info
Marco Alderighi () (CERTeT - Bocconi University, Milan)
Alessandro Cento () (KLM Royal Dutch Airlines, Revenue Management Dept, Milan)
Peter Nijkamp () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)
Piet Rietveld () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

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Abstract

This paper investigates the response of full service carriers (FSCs) to the entry of low-cost carriers (LCCs). We develop a model of airline competition, which accommodates various market structures, some of which include low-cost players. Using data on published airfares of Lufthansa, British Airways, Alitalia and KLM for the main city-pairs from Italy to the rest of Europe, our statistical modelling resu1ts confirm the conclusions of the theoretical model. Competition among FSCs appears to affect the price levels of business and leisure segments asymmetrically. In contrast, competition with LCCs reduces the fares of FSCs in all classes proportionally.

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Publisher Info
Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-074/3.

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Date of creation: 02 Jul 2004
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Handle: RePEc:dgr:uvatin:20040074

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: Pricing strategies yield management low-cost carriers European airline market

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Carlton, Dennis W, 1977. "Peak Load Pricing with Stochastic Demand," American Economic Review, American Economic Association, vol. 67(5), pages 1006-10, December. [Downloadable!] (restricted)
  2. Mark G. Lijesen & Piet Rietveld & Peter Nijkamp, 2000. "Do European Carriers dominate their Hubs?," Tinbergen Institute Discussion Papers 00-071/3, Tinbergen Institute. [Downloadable!]
  3. Ivaldi, M. & Martimort, D., 1992. "Competition Under Nonlinear Pricing," Papers 93.288, Toulouse - GREMAQ.
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  4. Calem, Paul S. & Spulber, Daniel F., 1984. "Multiproduct two part tariffs," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 105-115, June. [Downloadable!] (restricted)
  5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  6. Brander, James A. & Zhang, Anming, 1993. "Dynamic oligopoly behaviour in the airline industry," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 407-435, September. [Downloadable!] (restricted)
  7. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-83, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mark Lijesen & Peter Nijkamp & Eric Pels, 2005. "The Home Carrier Advantage in Civil Aviation," Tinbergen Institute Discussion Papers 05-011/3, Tinbergen Institute. [Downloadable!]
  2. David Edward Pitfield, 2004. "Airline Price Competition: A Time Series Analysis of 'Low-Cost' Carriers," ERSA conference papers ersa04p680, European Regional Science Association. [Downloadable!]
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