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Contestability and public concern about airfares: A case study in the Canary Islands

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  • Campos, Javier
  • Jiménez, Juan Luis
  • Perdiguero, Jordi

Abstract

This paper studies – both from a theoretical and empirical perspective – a case of contestability in the Canary Islands' domestic air transport market. We show how after the exit of its rival in an initially duopolistic market, the remaining airline did not increase its prices in order not to provoke the entry of new rivals. According to our view, this result was explained by the ‘public concern’ that was created about the incumbent's behaviour and its attempt of presenting itself as a benevolent monopolist. However, its strategy failed and a new operator finally entered the market, with a subsequent drop in average prices. We prove our hypothesis by developing a theoretical multi-route oligopolistic model with differentiated services and by testing its implications using several difference-in-difference econometric techniques on a monthly prices database collected in 2012–2013.

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  • Campos, Javier & Jiménez, Juan Luis & Perdiguero, Jordi, 2015. "Contestability and public concern about airfares: A case study in the Canary Islands," Transport Policy, Elsevier, vol. 42(C), pages 180-186.
    • Handle: RePEc:eee:trapol:v:42:y:2015:i:c:p:180-186
    DOI: 10.1016/j.tranpol.2015.06.006
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    Cited by:

    1. Abreu, José & Fageda, Xavier & Jiménez, Juan Luis, 2018. "An empirical evaluation of changes in Public Service Obligations in Spain," Journal of Air Transport Management, Elsevier, vol. 67(C), pages 1-10.
    2. Antunes, António P. & Santos, Miguel G. & Pita, João P. & Menezes, António G., 2018. "Study on the evolution of the air transport network of the Azores," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 837-851.

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    More about this item

    Keywords

    Air transport; Canary Islands; Entry and exit; Difference in difference;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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