IDEAS home Printed from https://ideas.repec.org/a/ucp/jlawec/v37y1994i2p379-415.html

Economies of Traffic Density in the Deregulated Airline Industry

Author

Listed:
  • Brueckner, Jan K
  • Spiller, Pablo T

Abstract

This article estimates a structural model of competition among hub-and-spoke airlines in order to measure the strength of economies of traffic density on individual route segments. We find that economies of density were strong during the sample period (fourth quarter 1985), stronger than previous estimates by Douglas Caves, Laurits Christensen, and Michael Tretheway derived from traditional cost-function methods. We also find that the airlines' competitive behavior was far from collusive in the markets under study (markets requiring a connection at a hub airport). Our structural model also provides plausible estimates of demand elasticities. We use our estimates to provide a cost-based rationale for the major changes in the structure of the industry following deregulation (for example, the increase in airport and industry-wide concentration, and the increase in competition at the city-pair market level) and to simulate the effects of a merger of airlines that share a hub. Copyright 1994 by the University of Chicago.

Suggested Citation

  • Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    • Handle: RePEc:ucp:jlawec:v:37:y:1994:i:2:p:379-415
    DOI: 10.1086/467318
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/467318
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/467318?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Bittlingmayer, George, 1990. "Efficiency and entry in a simple airline network," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 245-257, June.
    2. Berry, Steven T, 1990. "Airport Presence as Product Differentiation," American Economic Review, American Economic Association, vol. 80(2), pages 394-399, May.
    3. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    4. Bailey, Elizabeth E & Williams, Jeffrey R, 1988. "Sources of Economic Rent in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 173-202, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ruiz-Moreno, Felipe & Mas-Ruiz, Francisco J. & Sancho-Esper, Franco M., 2021. "Strategic groups and product differentiation: Evidence from the Spanish airline market deregulation," Research in Transportation Economics, Elsevier, vol. 90(C).
    2. Du, Yan & McMullen, B. Starr & Kerkvliet, Joe R., 2008. "The economic impact of the ATA/Southwest Airlines code-share agreement," Research in Transportation Economics, Elsevier, vol. 24(1), pages 51-60.
    3. Gayle, Philip G. & Wu, Chi-Yin, 2013. "A re-examination of incumbents’ response to the threat of entry: Evidence from the airline industry," Economics of Transportation, Elsevier, vol. 2(4), pages 119-130.
    4. Aguirregabiria, Victor & Ho, Chun-Yu, 2012. "A dynamic oligopoly game of the US airline industry: Estimation and policy experiments," Journal of Econometrics, Elsevier, vol. 168(1), pages 156-173.
    5. Bahram Adrangi & Garland Chow & Kambiz Raffiee, 1999. "The Effects of Market Structure and Technology on Airline Fleet Composition after Deregulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(1), pages 77-88, August.
    6. Claudio Agostini, 2005. "El Mercado de Transporte Aéreo: Lecciones para Chile de una Revisión de la Literatura," ILADES-UAH Working Papers inv163, Universidad Alberto Hurtado/School of Economics and Business.
    7. Yi Jiang & Tingting Que & Miaomiao Yu, 2022. "Price asymmetries in the US airline industry," The Financial Review, Eastern Finance Association, vol. 57(4), pages 793-814, November.
    8. Marti­n, Juan Carlos & Román, Concepción, 2003. "Hub location in the South-Atlantic airline market: A spatial competition game," Transportation Research Part A: Policy and Practice, Elsevier, vol. 37(10), pages 865-888, December.
    9. Ivaldi, Marc & Sokullu, Senay & Toru, Tuba, 2015. "Airport Prices in a Two-Sided Market Setting: Major US Airports," CEPR Discussion Papers 10658, Centre for Economic Policy Research.
    10. Zhang, Yahua & Sampaio, Breno & Fu, Xiaowen & Huang, Zhibin, 2018. "Pricing dynamics between airline groups with dual-brand services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 112(C), pages 46-59.
    11. Federico Ciliberto & Jonathan W. Williams, 2010. "Limited Access to Airport Facilities and Market Power in the Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 467-495.
    12. Lijesen, Mark G. & Rietveld, Piet & Nijkamp, Peter, 2001. "Hub premiums in European civil aviation," Transport Policy, Elsevier, vol. 8(3), pages 193-199, July.
    13. Van Dender, Kurt, 2007. "Determinants of fares and operating revenues at US airports," Journal of Urban Economics, Elsevier, vol. 62(2), pages 317-336, September.
    14. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.
    15. Gayle Philip G. & Wu Chi-Yin, 2014. "On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products," Review of Network Economics, De Gruyter, vol. 13(3), pages 355-395, September.
    16. Gayle, Philip G. & Yimga, Jules O., 2018. "How much do consumers really value air travel on-time performance, and to what extent are airlines motivated to improve their on-time performance?," Economics of Transportation, Elsevier, vol. 14(C), pages 31-41.
    17. Agostini, Claudio A. & Inostroza, Diego & Willington, Manuel, 2015. "Price effects of airlines frequent flyer programs: The case of the dominant firm in Chile," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 283-297.
    18. Yimga, Jules, 2020. "Price and marginal cost effects of on-time performance: Evidence from the US airline industry," Journal of Air Transport Management, Elsevier, vol. 84(C).
    19. Patrick Dennis & Kristopher Gerardi & Carola Schenone, 2019. "Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry," FRB Atlanta Working Paper 2019-15, Federal Reserve Bank of Atlanta.
    20. Brueckner, Jan K. & Lee, Darin & Singer, Ethan S., 2013. "Airline competition and domestic US airfares: A comprehensivereappraisal," Economics of Transportation, Elsevier, vol. 2(1), pages 1-17.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:v:37:y:1994:i:2:p:379-415. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JLE .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.