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Patterns and Effects of Entry in U.S. Airline Markets

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  • Kai Hüschelrath

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  • Kathrin Müller

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Abstract

We use T-100 traffic data and DB1B fare data from the U.S. Department of Transportation to identify patterns and effects of entry by network carriers and low-cost carriers in non-stop U.S. airline markets. For the sample period from 1996 to 2009, we find that entry activity of low-cost carriers did not only experience significant absolute increases but also led to substantial fare reductions. As route entries by network carriers do not have comparable effects, the existence and expansion of low-cost carriers must be considered as the main driver of competition in the domestic U.S. airline industry. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Kai Hüschelrath & Kathrin Müller, 2013. "Patterns and Effects of Entry in U.S. Airline Markets," Journal of Industry, Competition and Trade, Springer, vol. 13(2), pages 221-253, June.
  • Handle: RePEc:kap:jincot:v:13:y:2013:i:2:p:221-253
    DOI: 10.1007/s10842-011-0115-4
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    References listed on IDEAS

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    1. Joskow, Andrew S. & Werden, Gregory J. & Johnson, Richard L., 1994. "Entry, exit, and performance in airline markets," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 457-471, December.
    2. Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
    3. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1611-1633.
    4. Charles Boguslaski & Harumi Ito & Darin Lee, 2004. "Entry Patterns in the Southwest Airlines Route System," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(3), pages 317-350, August.
    5. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1074-1089, September.
    6. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    7. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    8. Daraban, Bogdan & Fournier, Gary M., 2008. "Incumbent responses to low-cost airline entry and exit: A spatial autoregressive panel data analysis," Research in Transportation Economics, Elsevier, vol. 24(1), pages 15-24.
    9. Steven A. Morrison, 2001. "Actual, Adjacent, and Potential Competition Estimating the Full Effect of Southwest Airlines," Journal of Transport Economics and Policy, University of Bath, vol. 35(2), pages 239-256, May.
    10. Michael D. Whinston & Scott C. Collins, 1992. "Entry and Competitive Structure in Deregulated Airline Markets: An Event Study Analysis of People Express," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 445-462, Winter.
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    Cited by:

    1. Kai Hüschelrath & Kathrin Müller, 2014. "Airline Networks, Mergers, and Consumer Welfare," Journal of Transport Economics and Policy, University of Bath, vol. 48(3), pages 385-407, September.

    More about this item

    Keywords

    airline industry; liberalisation; entry; low-cost carriers; L40; L93;

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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