IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Airline ambidextrous competition under an emissions trading scheme – A reference-dependent behavioral perspective

  • Sheu, Jiuh-Biing
Registered author(s):

    This study presents a reference-dependent Hotelling model for analyzing airline competition in pricing and green transportation investment, as well as the resulting financial performance under the European Union emission trading scheme. One feature of the proposed methodology is that it embeds psychological benefits/costs of consumers to characterize consumer attitudes to the increases in airline fare adjustments and improvements in green transportation. This study then investigates the equilibrium solutions for airfare adjustment and green transportation investment margins in different scenarios. The analytical results reveal specific operational conditions under which a cost-efficient airline can gain supreme competitive advantage by increasing both airfare and green transportation investment margins beyond the increases made by competitors under the emission trading scheme, whereas certain specific conditions may favor a cost leadership strategy. Conversely, a cost-inefficient airline can compete with a cost-efficient airline in both market share and profitability using the green transportation investment-differentiation strategy, particularly when consumers perceive the airfare difference as equaling the increased psychological benefit induced by the airline’s green effort.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0191261513002336
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

    Volume (Year): 60 (2014)
    Issue (Month): C ()
    Pages: 115-145

    as
    in new window

    Handle: RePEc:eee:transb:v:60:y:2014:i:c:p:115-145
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/548/description#description

    Order Information: Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
    Web: https://shop.elsevier.com/order?id=548&ref=548_01_ooc_1&version=01

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Chen, Kang & Yang, Zhongzhen & Notteboom, Theo, 2014. "The design of coastal shipping services subject to carbon emission reduction targets and state subsidy levels," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 192-211.
    2. Tsai, Wen-Hsien & Lee, Kuen-Chang & Liu, Jau-Yang & Lin, Hsiu-Ling & Chou, Yu-Wei & Lin, Sin-Jin, 2012. "A mixed activity-based costing decision model for green airline fleet planning under the constraints of the European Union Emissions Trading Scheme," Energy, Elsevier, vol. 39(1), pages 218-226.
    3. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    5. Adler, Nicole & Martini, Gianmaria & Volta, Nicola, 2013. "Measuring the environmental efficiency of the global aviation fleet," Transportation Research Part B: Methodological, Elsevier, vol. 53(C), pages 82-100.
    6. Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1133-1165, November.
    7. Egenhofer, Christian, 2007. "The Making of the EU Emissions Trading Scheme:: Status, Prospects and Implications for Business," European Management Journal, Elsevier, vol. 25(6), pages 453-463, December.
    8. Morrell, Peter, 2007. "An evaluation of possible EU air transport emissions trading scheme allocation methods," Energy Policy, Elsevier, vol. 35(11), pages 5562-5570, November.
    9. Jan K. Brueckner & Anming Zhang, 2009. "Airline Emission Charges: Effects on Airfares, Service Quality, and Aircraft Design," Working Papers 080916, University of California-Irvine, Department of Economics.
    10. Albers, Sascha & Bühne, Jan-André & Peters, Heiko, 2009. "Will the EU-ETS instigate airline network reconfigurations?," Journal of Air Transport Management, Elsevier, vol. 15(1), pages 1-6.
    11. Bolton, Ruth N & Drew, James H, 1991. " A Multistage Model of Customers' Assessments of Service Quality and Value," Journal of Consumer Research, University of Chicago Press, vol. 17(4), pages 375-84, March.
    12. Sgouridis, Sgouris & Bonnefoy, Philippe A. & Hansman, R. John, 2011. "Air transportation in a carbon constrained world: Long-term dynamics of policies and strategies for mitigating the carbon footprint of commercial aviation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1077-1091.
    13. Jidong Zhou, 2011. "Reference Dependence and Market Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1073-1097, December.
    14. Yagci, Mehmet I. & Biswas, Abhijit & Dutta, Sujay, 2009. "Effects of comparative advertising format on consumer responses: The moderating effects of brand image and attribute relevance," Journal of Business Research, Elsevier, vol. 62(8), pages 768-774, August.
    15. René Carmona & Juri Hinz, 2011. "Risk-Neutral Models for Emission Allowance Prices and Option Valuation," Management Science, INFORMS, vol. 57(8), pages 1453-1468, August.
    16. Malina, Robert & McConnachie, Dominic & Winchester, Niven & Wollersheim, Christoph & Paltsev, Sergey & Waitz, Ian A., 2012. "The impact of the European Union Emissions Trading Scheme on US aviation," Journal of Air Transport Management, Elsevier, vol. 19(C), pages 36-41.
    17. Mason, Keith J., 2005. "Observations of fundamental changes in the demand for aviation services," Journal of Air Transport Management, Elsevier, vol. 11(1), pages 19-25.
    18. Anger, Annela & Köhler, Jonathan, 2010. "Including aviation emissions in the EU ETS: Much ado about nothing? A review," Transport Policy, Elsevier, vol. 17(1), pages 38-46, January.
    19. Choi, Tsan-Ming, 2013. "Local sourcing and fashion quick response system: The impacts of carbon footprint tax," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 55(C), pages 43-54.
    20. Chen, Linxi & Yang, Hai, 2012. "Managing congestion and emissions in road networks with tolls and rebates," Transportation Research Part B: Methodological, Elsevier, vol. 46(8), pages 933-948.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:transb:v:60:y:2014:i:c:p:115-145. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.