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Intermodal competition in the Brazilian interstate travel market

  • Frederico Araújo Turolla

    ()

    (Escola Superior de Propaganda e Marketing (ESPM) and Fundação Getúlio Vargas (FGV). R. Dr. Neto de Araujo 320 cj 1307, Vila Mariana, São Paulo, Brazil)

  • Moisés Diniz Vassallo

    ()

    (Center for Studies of Airline Regulation and Competition, Aeronauthical Institute of Technology (NECTAR/ITA). Av. Escola Politécnica 2.200, AP 73, Bloco Itália - Jaquaré, São Paulo, Brazil.)

  • Alessandro V. Marques de Oliveira

    ()

    (Center for Studies of Airline Regulation and Competition, Aeronauthical Institute of Technology (NECTAR/ITA). Rua Vera Lúcia Cardoso Silva Barros 84, Urbanova, São José dos Campos, Brazil.)

This paper presents a test of intermodal interaction between coaches and airlines in Brazil in order to check for the efficacy of recent liberalization measures designed to promote competition in both industries. Interstate travel service in the country is heavily provided by coaches, and the system is fully operated by the private sector under public delegation through permits and authorizations. Agency-based regulation was introduced in 2002 along with a price cap regime aimed at enhancing the flexibility to change fares in response to demand and cost conditions. By making use of a reaction function-based model of coach operators’ pricing decisions in the interstate travel market, we then estimate the sensitivity of the changes in coach fares to the changes in airline fares in a simultaneous-equation framework. Intermodal interaction among coach operators and airlines is found to be highly significant and probably due to the competition for a small but increasing set of premium, quality-sensitive, coach passengers.

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Article provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its journal Revista de Analisis Economico.

Volume (Year): 23 (2008)
Issue (Month): 1 (June)
Pages: 21-33

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Handle: RePEc:ila:anaeco:v:23:y:2008:i:1:p:21-33
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