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Deregulation and Schedule Competition in Simple Airline Networks

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Author Info

  • Youdi Schipper

    ()

  • Piet Rietveld

    ()

  • Peter Nijkamp

    ()

Abstract

The present paper investigates the choice of route network, frequencies and ticket prices in air transport networks served by oligopolists. The paper describes these choices in a simple airline network by means of a simulation model. Airline competition is modeled as a 2 stage game: airlines first choose a particular flight schedule in a network, and in the second stage, airlines choose ticket prices. This simulation model thus describes airline profit maximizing behaviour in a given network environment. The model may now serve as a basis to address particular policy related questions. One such question is the welfare effect of airline deregulation. The welfare consequences resulting from the deregulation of airline markets have been investigated quite amply, both theoretically and empirically. In most cases, deregulation has been demonstrated to confer substantial benefits to consumers, and in some cases also to producers. At the same time, however, the external costs associated with aviation have become a major public policy concern in many countries. External effects - which in this case include noise, emissions and congestion - arise when markets lack: resources like peace and quiet, clean air and space are often unpriced. As a result, these resources are used in quantities beyond a social optimum. In the context of airline deregulation, it is now interesting to analyze the welfare effects caused the process of airline deregulation, taking the external costs of aviation into account. The present paper addresses this question while the network character of air transportation is taken into account.

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File URL: http://www-sre.wu-wien.ac.at/ersa/ersaconfs/ersa98/papers/205.pdf
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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa98p205.

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Date of creation: Aug 1998
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Handle: RePEc:wiw:wiwrsa:ersa98p205

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References

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  1. Victor D. Norman & Siri Strandenes, 1994. "Deregulation of Scandinavian Airlines: A Case Study of the Oslo-Stockholm Route," NBER Chapters, in: Empirical Studies of Strategic Trade Policy, pages 85-100 National Bureau of Economic Research, Inc.
  2. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
  3. Brueckner, Jan K. & Spiller, Pablo T., 1991. "Competition and mergers in airline networks," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 323-342, September.
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Cited by:
  1. Martín, Juan Carlos & Pilar Socorro, M., 2009. "A new era for airport regulators through capacity investments," Transportation Research Part A: Policy and Practice, Elsevier, vol. 43(6), pages 618-625, July.
  2. Socorro, M. Pilar & Betancor, Ofelia, 2011. "Optimality of environmental policies in air transport markets and changes in the schedule delay: A theoretical approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(9), pages 850-860, November.
  3. Brueckner, Jan K., 2002. "Network Structure and Airline Scheduling," Working Papers 02-0112, University of Illinois at Urbana-Champaign, College of Business.
  4. Sayed Ajaz Hussain & Serkan Bahceci, 2008. "Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation?," Working Papers tecipa-325, University of Toronto, Department of Economics.

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