Price and Frequency Choice under Monopoly and Competition in Aviation Markets
AbstractUsing data on 172 city-pair markets in eight European countries, we investigate the effect of the market structure on airlines choices of frequency and prices. Applying an address model, we show that equilibrium prices depend on passengers value of time, marginal flight costs and the aggregate number of flights. Furthermore, we show that under monopoly the equilibrium price is higher and the aggregate frequency is lower than under competition. The estimations show that market structure does not have any effect on Economy class ticket prices. However, market structure does have an effect on Business class ticket prices. The effects are in the expected direction: increased market concentration and decreased number of airlines results in increased ticket prices. Further, we find that applying the Herfindahl index as a measure of market concentration is restrictive and that the index instead should be decomposed. However, comparing the equilibrium price between monopoly and competitive routes we can reject the hypothesis of differences in equilibrium price. Regarding frequency choice, market structure again has a significant impact on the equilibrium prices, and the effects are as expected: decreased market concentration and an increased number of airlines results in increased aggregate frequencies. In the case of frequency we can reject the hypothesis that the aggregate frequency is the same under monopoly as it is under competition; the aggregate frequency under monopoly is found to be much lower.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 71.
Length: 18 pages
Date of creation: 07 Jun 2002
Date of revision:
Publication status: Published in Review of Industrial Organization, 2004, pages 37-49.
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Aviation; competition; frequency choice; address model;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
This paper has been announced in the following NEP Reports:
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.:
- Borenstein, Severin, 1990. "Airline Mergers, Airport Dominance, and Market Power," American Economic Review, American Economic Association, vol. 80(2), pages 400-404, May.
- Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
- Marin, Pedro L, 1995. "Competition in European Aviation: Pricing Policy and Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 141-59, June.
- Barla, Philippe, 2000.
"Firm size inequality and market power,"
International Journal of Industrial Organization,
Elsevier, vol. 18(5), pages 693-722, July.
- Victor D. Norman & Siri Strandenes, 1994.
"Deregulation of Scandinavian Airlines: A Case Study of the Oslo-Stockholm Route,"
in: Empirical Studies of Strategic Trade Policy, pages 85-100
National Bureau of Economic Research, Inc.
- Norman, V.D. & Strandenes, S.P., 1990. "Deregulation Of Scandinavian Airlines - A Case Study Of The Oslo-Stockholm Route," Papers 04-90, Norwegian School of Economics and Business Administration-.
- Norman, Victor D & Strandenes, Siri Pettersen, 1990. "Deregulation of Scandinavian Airlines: A Case Study of the Oslo-Stockholm Route," CEPR Discussion Papers 403, C.E.P.R. Discussion Papers.
- Severin Borenstein, 1992.
"The Evolution of U.S. Airline Competition,"
Journal of Economic Perspectives,
American Economic Association, vol. 6(2), pages 45-73, Spring.
- Brander, James A & Eaton, Jonathan, 1984.
"Product Line Rivalry,"
American Economic Review,
American Economic Association, vol. 74(3), pages 323-34, June.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Lanfranchi, Joseph & Ohlsson, Henry & Skalli, Ali, 2001.
"COMPENSATING WAGE DIFFERENTIALS AND SHIFT WORK PREFERENCES. Evidence from France,"
Working Papers in Economics
55, University of Gothenburg, Department of Economics.
- Lanfranchi, Joseph & Ohlsson, Henry & Skalli, Ali, 2002. "Compensating wage differentials and shift work preferences," Economics Letters, Elsevier, vol. 74(3), pages 393-398, February.
- Panzar, John C, 1979. "Equilibrium and Welfare in Unregulated Airline Markets," American Economic Review, American Economic Association, vol. 69(2), pages 92-95, May.
- Youdi Schipper & Piet Rietveld & Peter Nijkamp, 2002. "European Airline Reform: An Empirical Welfare Analysis," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 36(2), pages 189-209, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson).
If references are entirely missing, you can add them using this form.