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Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier

  • Xavier Fageda

    ()

    (Faculty of Economics, University of Barcelona)

  • Juan Luis Jiménez

    ()

    (Universidad de Las Palmas de Gran Canaria)

  • Jordi Perdiguero

    ()

    (Faculty of Economics, University of Barcelona)

Competition in airline markets may be tough. In this context, network carriers have two alternative strategies to compete with low-cost carriers. First, they may establish a low-cost subsidiary. Second, they may try to reduce costs using the main brand. This paper examines a successful strategy of the first type implemented by Iberia in the Spanish domestic market. Our analysis of data and the estimation of a pricing equation show that Iberia has been able to charge lower prices than rivals with its low-cost subsidiary. The pricing policy of the Spanish network carrier has been particularly aggressive in less dense routes and shorter routes.

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File URL: http://www.ub.edu/irea/working_papers/2010/201007.pdf
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Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201007.

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Length: 33 pages
Date of creation: Mar 2010
Date of revision: Mar 2010
Handle: RePEc:ira:wpaper:201007
Contact details of provider: Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/

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