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The value of bluer skies: How much do consumers gain from entry by JetBlue Airways in long-haul US Airline Markets?

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  • Hüschelrath, Kai
  • Müller, Kathrin

Abstract

The paper estimates the effects of entry by low-cost carrier JetBlue Airways in long-haul domestic U.S. airline markets. For the period from 2000 to 2009, we find that non-stop fares were on average about 21 percent lower post-entry; however, the magnitude of the price effect depends on the pre-entry market structure. While entry into monopoly markets triggered an average price decrease of about 25 percent, the respective average price drop for entries into oligopoly markets lied at about 15 percent. Based on additional estimates of the price and income elasticities for long-haul domestic U.S. flights, we conclude that JetBlue's long-haul entries alone led to an increase in consumer welfare of about USD 661 million. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 12-072.

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Date of creation: 2012
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Handle: RePEc:zbw:zewdip:12072

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Keywords: airline industry; entry; low-cost carrier; consumer welfare effects;

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References

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  1. Elie Tamer & Federico Ciliberto, 2004. "Market Structure and Multiple Equilibria in Airline Markets," 2004 Meeting Papers 52, Society for Economic Dynamics.
  2. Joskow, A.S. & Werden, G.J. & Johnson, R.L., 1990. "Entry, Exit, And Performance In Airline Market," Papers, U.S. Department of Justice - Antitrust Division 90-10, U.S. Department of Justice - Antitrust Division.
  3. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 889-917, July.
  4. Austan Goolsbee & Chad Syverson, 2008. "How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1611-1633, November.
  5. Daraban, Bogdan & Fournier, Gary M., 2008. "Incumbent responses to low-cost airline entry and exit: A spatial autoregressive panel data analysis," Research in Transportation Economics, Elsevier, Elsevier, vol. 24(1), pages 15-24.
  6. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, American Economic Association, vol. 71(4), pages 662-76, September.
  7. Charles Boguslaski & Harumi Ito & Darin Lee, 2004. "Entry Patterns in the Southwest Airlines Route System," Review of Industrial Organization, Springer, Springer, vol. 25(3), pages 317-350, 08.
  8. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(5), pages 1074-1089, September.
  9. Steven A. Morrison, 2001. "Actual, Adjacent, and Potential Competition Estimating the Full Effect of Southwest Airlines," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 35(2), pages 239-256, May.
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