The Entry of Low-Cost Airlines: Price Competition in the European Airline Market
AbstractThis paper investigates the response of full service carriers (FSCs) to theentry of low-cost carriers (LCCs). We develop a model of airlinecompetition, which accommodates various market structures, some ofwhich include low-cost players. Using data on published airfares ofLufthansa, British Airways, Alitalia and KLM for the main city-pairs fromItaly to the rest of Europe, our statistical modelling resu1ts confirm theconclusions of the theoretical model. Competition among FSCs appears toaffect the price levels of business and leisure segments asymmetrically. Incontrast, competition with LCCs reduces the fares of FSCs in all classesproportionally.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-074/3.
Date of creation: 02 Jul 2004
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Pricing strategies; yield management; low-cost carriers; European airline market;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-23 (All new papers)
- NEP-COM-2004-08-23 (Industrial Competition)
- NEP-EEC-2004-08-23 (European Economics)
- NEP-IND-2004-08-31 (Industrial Organization)
- NEP-MIC-2004-08-23 (Microeconomics)
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