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Measuring Conduct And Cost Parameters In The Spanish Airline Market

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  • Xavier Fageda

    (University of Barcelona)

Abstract

This paper develops a model of airline competition. The model is based on a demand and pricing equation system, which is estimated for the Spanish airline market. The empirical implementation of the equation system relies on a simultaneous rather than a consecutive procedure. I test the explanatory power of alternative oligopoly models with capacity constraints. In addition, I analyze the degree of density economies. Results show that Spanish airlines conduct is less competitive than the Cournot solution. I also find evidence that thin routes can be considered as natural monopolies.

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File URL: http://128.118.178.162/eps/io/papers/0511/0511011.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0511011.

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Length: 24 pages
Date of creation: 16 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0511011

Note: Type of Document - pdf; pages: 24
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Web page: http://128.118.178.162

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Keywords: Oligopoly; Air Transportation; Multiple Equation Models;

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References

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  1. Christos Pitelis & Mirko Schnell, 2002. "Barriers to Mobility in Europe's Civil Aviation Markets: Theory and New Evidence," Review of Industrial Organization, Springer, vol. 20(2), pages 127-150, March.
  2. 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.
  3. Thorsten Fischer & David R. Kamerschen, 2003. "Price-Cost Margins in the US Airline Industry using a Conjectural Variation Approach," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 37(2), pages 227-259, May.
  4. Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Fredrik Carlsson, 2004. "Prices and Departures in European Domestic Aviation Markets," Review of Industrial Organization, Springer, vol. 24(1), pages 37-49, 02.
  6. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
  7. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
  8. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
  9. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  10. Evans, William N & Kessides, Ioannis N, 1993. "Localized Market Power in the U.S. Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 66-75, February.
  11. Braeutigam, Ronald R., 1989. "Optimal policies for natural monopolies," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 23, pages 1289-1346 Elsevier.
  12. Michael D. Whinston & Scott C. Collins, 1992. "Entry and Competitive Structure in Deregulated Airline Markets: An Event Study Analysis of People Express," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 445-462, Winter.
  13. Karen Clay & Werner Troesken, 2003. "Further Tests of Static Oligopoly Models: Whiskey, 1882-1898," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 151-166, 06.
  14. James A. Brander & Anming Zhang, 1990. "Market Conduct in the Airline Industry: An Empirical Investigation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 567-583, Winter.
  15. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
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Citations

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Cited by:
  1. Joan Calzada & Xavier Fageda, 2012. "Discounts and Public Service Obligations in the Airline Market: Lessons from Spain," Review of Industrial Organization, Springer, vol. 40(4), pages 291-312, June.
  2. Volodymir BilotKach & Xavier Fageda & Ricardo Flores-Fillol, 2009. "Scheduled service versus personal transportation: the role of distance," Working Papers 2009-10, FEDEA.
  3. Fageda, Xavier & Fernández-Villadangos, Laura, 2009. "Triggering competition in the Spanish airline market: The role of airport capacity and low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 15(1), pages 36-40.
  4. repec:dgr:uvatin:2011179 is not listed on IDEAS
  5. Cantos-Sánchez, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, José J. & Álvarez-SanJaime, Óscar, 2009. "Alternative pricing regimes in interurban passenger transport with externalities and modal competition," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 128-137, March.
  6. 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.
  7. Sainz-González, Rubén & Núnez-Sánchez, Ramón & Coto-Millán, Pablo, 2011. "The impact of airport fees on fares for the leisure air travel market: The case of Spain," Journal of Air Transport Management, Elsevier, vol. 17(3), pages 158-162.
  8. Silva, Hugo E. & Verhoef, Erik T., 2013. "Optimal pricing of flights and passengers at congested airports and the efficiency of atomistic charges," Journal of Public Economics, Elsevier, vol. 106(C), pages 1-13.
  9. Xavier Fageda, 2014. "“What hurts the dominant airlines at hub airports?”," IREA Working Papers 201414, University of Barcelona, Research Institute of Applied Economics, revised May 2014.

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