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Low cost carriers, secondary airports and State aid: an economic assessment of the Charleroi affair

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  • Cristina Barbot

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    (CETE, Faculdade de Economia, Universidade do Porto)

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    Abstract

    In this paper a vertical differentiation model is built in order to analyse the effects of subsidies to secondary airports, or of lower prices set by them, on the competition between LCC’s and FSC’s. The Ryanair/ Charleroi agreement is used as an example and as a basis for the model. The main findings are that subsidisation (or lower airport charges) benefits consumers and negatively affects incumbent airlines. However, they may be more affected by competition than by the subsidy. An empirical analysis provides a few insights on LCC’s price strategies, namely that they retain rents resulting from lower aeronautical fees on dominated airports, and that their price strategy does not change with the presence of other LCC’s.

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    Bibliographic Info

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 159.

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    Length: 16 pages.
    Date of creation: Oct 2004
    Date of revision:
    Handle: RePEc:por:fepwps:159

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    Keywords: Low cost carriers; airports; airline competition; State aid.;

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    1. Jorge M. S. Valente & Rui A. F. S. Alves, 2003. "Improved Heuristics for the Early/Tardy Scheduling Problem with No Idle Time," FEP Working Papers 126, Universidade do Porto, Faculdade de Economia do Porto.
    2. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
    3. Luís Delfim Santos & Isabel Martins, 2002. "A Qualidade de Vida Urbana - O caso da cidade do Porto," FEP Working Papers 116, Universidade do Porto, Faculdade de Economia do Porto.
    4. Aurora Teixeira, 2002. "On the Link between Human Capital and Firm Performance. A Theoretical and Empirical Survey," FEP Working Papers 121, Universidade do Porto, Faculdade de Economia do Porto.
    5. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
    7. Jorge M. S. Valente & Rui A. F. S. Alves, 2003. "An Exact Approach to Early/Tardy Scheduling with Release Dates," FEP Working Papers 129, Universidade do Porto, Faculdade de Economia do Porto.
    8. Aurora Teixeira & Natércia Fortuna, 2003. "Human Capital, Innovation Capability and Economic Growth," FEP Working Papers 131, Universidade do Porto, Faculdade de Economia do Porto.
    9. António Brandão & Sofia B. S. D. Castro, 2001. "Objectives of Public Firms and Entry," FEP Working Papers 114, Universidade do Porto, Faculdade de Economia do Porto.
    10. Ana Paula Serra, 2002. "The Cross-Sectional Determinants of Returns: Evidence from Emerging Markets' Stocks," FEP Working Papers 120, Universidade do Porto, Faculdade de Economia do Porto.
    11. Jorge M. S. Valente & Rui A. F. S. Alves, 2003. "Improved Lower Bounds for the Early/Tardy Scheduling Problem with No Idle Time," FEP Working Papers 125, Universidade do Porto, Faculdade de Economia do Porto.
    12. Álvaro Almeida, 2003. "40 Years of Monetary Targets and Financial Crises in 20 OECD Countries," FEP Working Papers 128, Universidade do Porto, Faculdade de Economia do Porto.
    13. Jorge M. S. Valente, 2003. "Using Instance Statistics to Determine the Lookahead Parameter Value in the ATC Dispatch Rule: Making a good heuristic better," FEP Working Papers 127, Universidade do Porto, Faculdade de Economia do Porto.
    14. Ana Paula Serra, 2002. "Event Study Tests: A brief survey," FEP Working Papers 117, Universidade do Porto, Faculdade de Economia do Porto.
    15. Cristina Barbot, 2002. "Does Airport Regulation Benefit Consumers?," FEP Working Papers 119, Universidade do Porto, Faculdade de Economia do Porto.
    16. Pedro Cosme da Costa Vieira, 2003. "The Impact of Monetary Shocks on Product and Wages: A neoclassical aggregated dynamic model," FEP Working Papers 132, Universidade do Porto, Faculdade de Economia do Porto.
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