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One price for all? Price discrimination and market captivity: Evidence from the Italian city-pair markets

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  • Bergantino, Angela Stefania
  • Capozza, Claudia

Abstract

This paper tests whether, and to what extent, airlines exploit market captivity by using price discrimination strategies. The Italian passenger market is particularly fit for this purpose, given the high differentials in the degree of the inter-modal competition amongst domestic connections. Results show that, ceteris paribus, airlines adopt a different pricing behaviour depending on the degree of inter-modal market captivity. First, in highly concentrated markets with respect to air competitors, airlines price higher when the inter-modal competition is limited. This proves that inter-modal market captivity strengthens the effect of market power. Second, the inter-temporal price discrimination leads to a J-shaped distribution of fares over time, which is more pronounced when the inter-modal competition is effective. This suggests that airlines need to adopt a pricing technique that allows for a greater market segmentation in order to compete successfully with high-speed rail transport and to extract a larger part of passengers’ surplus. These results are relevant in terms of transport-investment implications and competition policy. The indirect benefits that investments in rail infrastructure would yield through downward pressures on competing airline fares should be embedded in any cost-benefit analysis of high-speed networks investments and in any policy evaluation of measures that aim to reduce the territorial gaps in infrastructure endowment and accessibility.

Suggested Citation

  • Bergantino, Angela Stefania & Capozza, Claudia, 2015. "One price for all? Price discrimination and market captivity: Evidence from the Italian city-pair markets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 231-244.
  • Handle: RePEc:eee:transa:v:75:y:2015:i:c:p:231-244
    DOI: 10.1016/j.tra.2015.03.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. repec:eee:trapol:v:78:y:2019:i:c:p:8-18 is not listed on IDEAS
    2. repec:taf:applec:v:50:y:2018:i:46:p:4937-4953 is not listed on IDEAS
    3. Angela S. Bergantino & Claudia Capozza & Mauro Capurso, 2018. "Pricing strategies: who leads and who follows in the air and rail passenger markets in Italy," Applied Economics, Taylor & Francis Journals, vol. 50(46), pages 4937-4953, October.
    4. repec:gam:jsusta:v:11:y:2019:i:14:p:3933-:d:249773 is not listed on IDEAS
    5. Cattaneo, Mattia & Malighetti, Paolo & Morlotti, Chiara & Redondi, Renato, 2016. "Quantity price discrimination in the air transport industry: The easyJet case," Journal of Air Transport Management, Elsevier, vol. 54(C), pages 1-8.
    6. repec:eee:touman:v:61:y:2017:i:c:p:23-34 is not listed on IDEAS
    7. repec:eee:jaitra:v:80:y:2019:i:c:4 is not listed on IDEAS
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    9. repec:eee:retrec:v:74:y:2019:i:c:p:77-92 is not listed on IDEAS
    10. Cherbonnier, Frédéric & Ivaldi, Marc & Muller-Vibes, Catherine & Van Der Straeten, Karine, 2018. "Competition For Versus In the Market of Long-Distance Passenger Rail Services," TSE Working Papers 18-901, Toulouse School of Economics (TSE), revised Apr 2018.
    11. Daniel Albalate & Mattia Borsati, 2019. "“On the modal shift from motorway to high-speed rail: evidence from Italy”," IREA Working Papers 201910, University of Barcelona, Research Institute of Applied Economics, revised Jun 2019.
    12. Capozza, Claudia, 2016. "The effect of rail travel time on airline fares: First evidence from the Italian passenger market," Economics of Transportation, Elsevier, vol. 6(C), pages 18-24.

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