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A Cournot model for analysing the effects of an open skies agreement

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Author Info

  • Vera Alves

    ()
    (Universidade do Porto)

  • Rosa Forte

    ()
    (Faculdade de Economia, Universidade do Porto, and cef.up)

Abstract

In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we developed a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement. Based on the model developed it can be concluded that the prices on international market segments where competition increases should decline after market liberalisation, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes after the agreement, leading to decreased profits.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 1311.

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Length: 29 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:por:cetedp:1311

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Keywords: Open Skies agreement; Cournot model; Effects on prices; Firms’ profits.;

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  1. Barbot, Cristina, 2004. "Economic effects of re-allocating airports slots: a vertical differentiation approach," Journal of Air Transport Management, Elsevier, Elsevier, vol. 10(5), pages 333-343.
  2. Pels, Eric, 2009. "Network competition in the open aviation area," Journal of Air Transport Management, Elsevier, Elsevier, vol. 15(2), pages 83-89.
  3. Cosmas, Alex & Belobaba, Peter & Swelbar, William, 2010. "The effects of open skies agreements on transatlantic air service levels," Journal of Air Transport Management, Elsevier, Elsevier, vol. 16(4), pages 222-225.
  4. Victor Aguirregabiria & Chun-Yu Ho, 2009. "A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence," Working Papers tecipa-379, University of Toronto, Department of Economics.
  5. Adler, Nicole & Hashai, Niron, 2005. "Effect of open skies in the Middle East region," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 39(10), pages 878-894, December.
  6. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 19(10), pages 1475-1498, December.
  7. Bilotkach, Volodymyr, 2007. "Complementary versus semi-complementary airline partnerships," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 41(4), pages 381-393, May.
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