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Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier

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Author Info

  • Xavier Fageda

    () (Faculty of Economics, University of Barcelona)

  • Juan Luis Jiménez

    () (Universidad de Las Palmas de Gran Canaria)

  • Jordi Perdiguero

    () (Faculty of Economics, University of Barcelona)

Abstract

Competition in airline markets may be tough. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive in less dense routes and shorter routes.

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File URL: http://www.ub.edu/irea/working_papers/2010/201007.pdf
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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201007.

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Length: 33 pages
Date of creation: Mar 2010
Date of revision: Mar 2010
Handle: RePEc:ira:wpaper:201007

Contact details of provider:
Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Related research

Keywords: Airlines; competition; low-cost carriers JEL classification:L13; L59; L71;

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Cited by:
  1. Ofelia Betancor & Juan Luis Jiménez, 2011. "When trains go faster than planes: the strategic reaction of airlines in Spain," ERSA conference papers ersa11p295, European Regional Science Association.
  2. Michael Artis & Ernest Miguélez & Rosina Moreno, 2009. "Assessing Agglomeration Economies in a Spatial Framework with Endogenous Regressors," SERC Discussion Papers 0023, Spatial Economics Research Centre, LSE.
  3. Juan Luis Jiménez & Jordi Perdiguero & Ancor Suárez, 2011. "Debating as a classroom tool for adapting learning outcomes to the European higher education area," IREA Working Papers 201109, University of Barcelona, Research Institute of Applied Economics, revised Jun 2011.

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