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DYPES: Vertical differentiation, schedule delay and entry deterrence: Low cost vs. full service airlines

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  • Jorge Valido
  • M. Pilar Socorro
  • Francesca Medda
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    Abstract

    We consider a market with a full-service (FS) carrier (the incumbent) and a low-cost (LC) carrier (the potential entrant). If the LC carrier enters the market, airlines compete in ticket prices and frequency with vertically differentiated products. The higher the frequency, the lower passenger’s generalized price. Thus, more frequency allows airlines to increase ticket prices without losing demand. In this context, we show that the incumbent may increase the frequency offered in order to deter the LC carrier entry. We show that if the airport capacity is low enough the LC carrier entry can be easily blocked or deterred. However, if the airport capacity is sufficiently high, the LC carrier entry must be accommodated.

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    Bibliographic Info

    Paper provided by FEDEA in its series Working Papers with number 2013-05.

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    Date of creation: Jul 2013
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    Handle: RePEc:fda:fdaddt:2013-05

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