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Time effect of low-cost carrier entry and social welfare in US large air markets

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  • Murakami, Hideki

Abstract

In this study we empirically analyzed the airfare level at which most low-cost carriers (LCCs) entered the market, what impacts LCCs had on the airfares of incumbent carriers, whether the impacts differed depending on how many LCCs existed in a market and on whether LCC(s) entered a full-service carrier (FSC)'s hub airport or an adjacent airport, whether the low-airfare impact continued for the years following entry, and finally what are the welfare implication of LCCs' entries. We modeled and estimated the simultaneous demand and price (pseudo-supply) equation to derive these four economic impacts of LCCs' entries by using published data of 1998. Our main findings are that the impact of LCCs' entries did not differ between the entry year and the second year and the social welfare gains are substantial, and 90% of welfare gains come from the gain in consumers surplus.

Suggested Citation

  • Murakami, Hideki, 2011. "Time effect of low-cost carrier entry and social welfare in US large air markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(3), pages 306-314, May.
  • Handle: RePEc:eee:transe:v:47:y:2011:i:3:p:306-314
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    Citations

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    Cited by:

    1. Yang, Chih-Wen, 2016. "Entry effect of low-cost carriers on airport-pairs demand model using market concentration approach," Journal of Air Transport Management, Elsevier, vol. 57(C), pages 291-297.
    2. Hanaoka, Shinya & Takebayashi, Mikio & Ishikura, Tomoki & Saraswati, Batari, 2014. "Low-cost carriers versus full service carriers in ASEAN: The impact of liberalization policy on competition," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 96-105.
    3. Hideki Murakami & Ryota Asahi, 2011. "An empirical analysis of the effect of multimarket contacts on air carriers' pricing behaviors: A case of the U.S," Discussion Papers 2011-35, Kobe University, Graduate School of Business Administration.
    4. repec:eee:jaitra:v:64:y:2017:i:pa:p:86-90 is not listed on IDEAS
    5. repec:eee:jaitra:v:64:y:2017:i:pb:p:101-112 is not listed on IDEAS
    6. Dresner, Martin & Eroglu, Cuneyt & Hofer, Christian & Mendez, Fabio & Tan, Kerry, 2015. "The impact of Gulf carrier competition on U.S. airlines," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 31-41.
    7. Murakami, Hideki & Amano, Yoshihisa & Asahi, Ryota, 2015. "Dynamic effect of inter-firm rivalry on airfares: Case of Japan's full-service and new air carriers," Journal of Air Transport Management, Elsevier, vol. 44, pages 25-33.

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