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Competitive vs. monopolistic routes: Are fares so different?

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  • Malighetti, Paolo
  • Redondi, Renato
  • Salanti, Andrea

Abstract

Many different carriers operating on the same route is usually regarded as a signal of a competitive setting and, therefore, as a situation potentially beneficial for customers in terms of lower prices. This is obviously true if the argument involves a comparison between different market forms given the level of demand. Across different routes, however, the number of carriers depends also on the level of demand for each particular pair of destinations, so that we cannot assume a priori that fares per kilometre on “monopolistic” routes are higher than on more “competitive” ones. We study the price policy during 2008 of the two main European low cost carriers, Ryanair and easyJet, with reference to one hundred of the least, and one hundred of the most, dense routes among those operated by the two carriers respectively. The systematic occurrence of higher (for Ryanair), or at least no lower (for easyJet), average prices on competitive routes if compared with prices on routes with a single carrier by the same airline, surprising as it may be, supports the conclusion that a low level of demand is sufficient to impose low fares to some extent irrespective of the degree of competition.

Suggested Citation

  • Malighetti, Paolo & Redondi, Renato & Salanti, Andrea, 2014. "Competitive vs. monopolistic routes: Are fares so different?," Research in Transportation Economics, Elsevier, vol. 45(C), pages 3-8.
    • Handle: RePEc:eee:retrec:v:45:y:2014:i:c:p:3-8
    DOI: 10.1016/j.retrec.2014.07.001
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    Cited by:

    1. Andrés Martínez, María-Encarnación & Alfaro Navarro, José-Luis & Trinquecoste, Jean-François, 2017. "The effect of destination type and travel period on the behavior of the price of airline tickets," Research in Transportation Economics, Elsevier, vol. 62(C), pages 37-43.
    2. Cattaneo, Mattia & Malighetti, Paolo & Redondi, Renato & Salanti, Andrea, 2018. "Changes in frequencies and price variations on point-to-point routes: The case of easyJet," Transportation Research Part A: Policy and Practice, Elsevier, vol. 112(C), pages 60-70.
    3. Andrea Salanti, 2020. "All That Glitters Is Not Gold: The Case of Mainstream Pluralism," Annals of the Fondazione Luigi Einaudi. An Interdisciplinary Journal of Economics, History and Political Science, Fondazione Luigi Einaudi, Torino (Italy), vol. 54(2), pages 287-310, December.
    4. Beria, Paolo & Bertolin, Alberto, 2019. "Evolving long-distance passenger services. Market concentration, fares and specialisation patterns in Italy," Research in Transportation Economics, Elsevier, vol. 74(C), pages 77-92.
    5. Pavlović, Dejan & Babić, Danica, 2018. "Recent trends in assessment of proposed consolidations in EU airline industry – From discretion to arbitrariness," Transport Policy, Elsevier, vol. 69(C), pages 65-77.
    6. Beria, Paolo & Tolentino, Samuel & Filippini, Gabriele, 2020. "Are prices reduced from direct competition in high-speed rail? Some unexpected evidences from Italy," MPRA Paper 98841, University Library of Munich, Germany.
    7. Avogadro, Nicolò & Malighetti, Paolo & Redondi, Renato & Salanti, Andrea, 2021. "A tale of airline competition: When full-service carriers undercut low-cost carriers fares," Journal of Air Transport Management, Elsevier, vol. 92(C).

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    More about this item

    Keywords

    Price differentiation; Market segmentation; Dynamic pricing; Low cost carriers;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • R49 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Other
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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