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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Xavier Fageda & Juan Luis Jiménez & Jordi Perdiguero, 2010. "Price rivalry in airline markets: a study of a successful strategy of a network carrier against a low-cost carrier," IREA Working Papers 201007, University of Barcelona, Research Institute of Applied Economics, revised Mar 2010.
    • Handle: RePEc:ira:wpaper:201007
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    6. Bergantino, Angela S. & Capozza, Claudia & Capurso, Mauro, 2015. "The impact of open access on intra- and inter-modal rail competition. A national level analysis in Italy," Transport Policy, Elsevier, vol. 39(C), pages 77-86.
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    11. Angela Stefania Bergantino & Claudia Capozza, 2015. "Airline Pricing Behavior Under Limited Inter-Modal Competition," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 700-713, 01.
    12. Soyk, Christian & Ringbeck, Jürgen & Spinler, Stefan, 2021. "Effect of long-haul low-cost carriers on North Atlantic air fares," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 152(C).
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    Keywords

    Airlines; competition; low-cost carriers JEL classification:L13; L59; L71;
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