Competition, Market Niches, and Efficiency: A Structural Model of the European Airline Industry
In this paper we specify and estimate a structural model of competition for the European airline industry to assess the potential for price reductions if competition increases. The model has two distinguishing features: First, we allow for firms to make short- and long-run decisions by explicitly estimating a structural, two-stage game. In that sense, our model allows for dynamics that do not rely on the switching regime literature. Unlike some of the other contributions in the literature, we also explicitly estimate the entire structural model, that is demand, cost (short and long run), and conduct. Second, our paper distinguishes between domestic market niches and competition at the international level, by specifying a product-differentiated game in the second stage. This distinction carries important policy implications. In general we find that relatively little market power is due to price collusion. In fact, firms compete significantly more than a standard Nash game would suggest. On the other hand, significant monopoly power is identified in domestic markets. Given that prices are not high because of cartel pricing, airline prices in Europe might come down more gradually as efficiency increases and market niches are abolished.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Mar 1994|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:926. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.