IDEAS home Printed from https://ideas.repec.org/p/ira/wpaper/201007.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: http://www.ub.edu/irea/working_papers/2010/201007.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. António Afonso & Peter Claeys & Ricardo Sousa, 2011. "Fiscal regime shifts in Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(2), pages 83-108, August.
    2. Jordi López-Tamayo & Vicente Royuela & Jordi Suriñach, 2012. "“Building a “quality in work” index in Spain”," IREA Working Papers 201206, University of Barcelona, Research Institute of Applied Economics, revised Feb 2012.
    3. Germà Bel & Elbert Dijkgraaf & Xavier Fageda & Raymond Gradus, 2008. "Similar problems, different solutions: Comparing refuse collection in the Netherlands and Spain," IREA Working Papers 200815, University of Barcelona, Research Institute of Applied Economics, revised Nov 2008.
    4. David Castells-Quintana & Vicente Royuela, 2014. "Agglomeration, inequality and economic growth," The Annals of Regional Science, Springer;Western Regional Science Association, pages 343-366.
    5. Juan Carlos Duque & Raúl Ramos & Vicente Royuela, 2011. "Research networks and scientific production in Economics: The recent Spanish Experience," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT, June.
    6. Lee, Sangwon & Marcu, Mircea & Lee, Seonmi, 2011. "An empirical analysis of fixed and mobile broadband diffusion," Information Economics and Policy, Elsevier, vol. 23(3), pages 227-233.
    7. Ramos, Raul & Duque, Juan Carlos & Nieto, Sandra, 2012. "Decomposing the Rural-Urban Differential in Student Achievement in Colombia Using PISA Microdata," IZA Discussion Papers 6515, Institute for the Study of Labor (IZA).
    8. Vicente Royuela & Diona Lambiri & Bianca Biagi, 2006. "Economía Urbana y calidad de vida. Una revisión del estado del conocimiento en España," Working Papers CREAP2006-13, Xarxa de Referència en Economia Aplicada (XREAP), revised Dec 2006.
    9. Montserrat Guillen & Jens Perch Nielsen & Tomas Scheike & Ana Maria Perez-Marin, 2006. "Time-varying effects when analysing customer lifetime duration, application to the insurance market," IREA Working Papers 200604, University of Barcelona, Research Institute of Applied Economics, revised Dec 2006.
    10. KERIMOGLU, Ebru & KARAHASAN, B. Can, 2014. "Location Patterns Of Creative Capital And Regional Disparities In Spain," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 14(1), pages 115-132.
    11. Javier Campos & Juan Luis Jiménez & Ancor Suárez-Alemán, 2012. "“Not always sunny in paradise: prices and brand diversity in touristic areas supermarkets”," IREA Working Papers 201211, University of Barcelona, Research Institute of Applied Economics, revised May 2012.
    12. Vicente Royuela & Miguel Vargas, 2007. "Defining housing market areas using commuting and migration algorithms.Catalonia (Spain) as an applied case study," IREA Working Papers 200707, University of Barcelona, Research Institute of Applied Economics, revised Apr 2007.
    13. Erika Badillo & Rosina Moreno, 2012. "“What Drives the Choice of Partners in R&D Cooperation? Heterogeneity across Sectors”," IREA Working Papers 201213, University of Barcelona, Research Institute of Applied Economics, revised Jul 2012.
    14. Isabel Cortés-Jiménez & Manuela Pulina & Carme Riera i Prunera & Manuel Artís, 2009. "Tourism and Exports as a means of Growth," IREA Working Papers 200910, University of Barcelona, Research Institute of Applied Economics, revised May 2009.
    15. Ebru Kerimoglu & Burhan Can Karahasan, 2011. "“Geography of talent and regional differences in Spain”," IREA Working Papers 201107, University of Barcelona, Research Institute of Applied Economics, revised Jun 2011.
    16. Vicente Royuela & Gustavo Adolfo García, 2015. "Economic and Social Convergence in Colombia," Regional Studies, Taylor & Francis Journals, vol. 49(2), pages 219-239, February.
    17. Sandra Nieto Viramontes & Raul Ramos Lobo, 2011. "¿La sobreeducación de los padres afecta al rendimiento académico de sus hijos?," Investigaciones de Economía de la Educación volume 6,in: Antonio Caparrós Ruiz (ed.), Investigaciones de Economía de la Educación 6, edition 1, volume 6, chapter 11, pages 185-206 Asociación de Economía de la Educación.
    18. Vicente Royuela & Jordi López-Tamayo & Jordi Suriñach, 2008. "The Institutional vs. the Academic Definition of the Quality of Work Life. What is the Focus of the European Commission?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 86(3), pages 401-415, May.
    19. Vicente Royuela & Manuel Sanchis, 2010. "La reforma de la contratación en el mercado de trabajo: entre la flexibilidad y la seguridad," IREA Working Papers 201006, University of Barcelona, Research Institute of Applied Economics, revised Mar 2010.
    20. M. Bourreau & P. Dogan, "undated". "Build or Buy Strategies in the Local Loop," Working Paper 33647, Harvard University OpenScholar.
    21. McDonough, Carol C., 2012. "Fixed and mobile broadband: Demand and market structure," 23rd European Regional ITS Conference, Vienna 2012 60350, International Telecommunications Society (ITS).
    22. Vicente Royuel & Rosina Moreno & Esther Vaya, 2007. "Is the influence of quality of life on urban growth non-stationary in space? A case study of Barcelona," IREA Working Papers 200703, University of Barcelona, Research Institute of Applied Economics, revised Feb 2007.
    23. Bouckaert, Jan & van Dijk, Theon & Verboven, Frank, 2010. "Access regulation, competition, and broadband penetration: An international study," Telecommunications Policy, Elsevier, pages 661-671.
    24. Raquel Ortega-Argilés & Mariacristina Piva & Marco Vivarelli, 2014. "The transatlantic productivity gap: Is R&D the main culprit?," Canadian Journal of Economics, Canadian Economics Association, vol. 47(4), pages 1342-1371, November.
    25. Raúl Ramos & Vicente Royuela & Jordi Suriñach, 2007. "An analysis of the determinants in Economics and Business publications by Spanish universities between 1994 and 2004," Scientometrics, Springer;Akadémiai Kiadó, vol. 71(1), pages 117-144, April.
    26. Francesca Arnaboldi & Peter Claeys, 2008. "Internet Banking in Europe: a comparative analysis," IREA Working Papers 200811, University of Barcelona, Research Institute of Applied Economics, revised Sep 2008.
    27. Alessia Matano & Paolo Naticchioni, 2016. "What Drives The Urban Wage Premium? Evidence Along The Wage Distribution," Journal of Regional Science, Wiley Blackwell, vol. 56(2), pages 191-209, March.
    28. Marc Bourreau & Pinar Dogan, 2006. ""Build-or-Buy" Strategies in the Local Loop," American Economic Review, American Economic Association, pages 72-76.
    29. Peter Claeys & Luis Costa, 2012. "“A Note on the Relationship Between the Cyclicality of Markups and Fiscal Policy”," AQR Working Papers 201208, University of Barcelona, Regional Quantitative Analysis Group, revised Sep 2012.
    30. Enrique López-Bazo & Burhan Can Karahasan, 2011. "The Spatial Distribution of Human Capital: Can It Really Be Explained by Regional Differences in Market Access?," ERSA conference papers ersa11p1122, European Regional Science Association.
    31. Koutroumpis, Pantelis, 2009. "The economic impact of broadband on growth: A simultaneous approach," Telecommunications Policy, Elsevier, pages 471-485.
    32. Ana María Osorio & Catalina Bolancé & Manuela Alcañiz, 2011. "Measuring early childhood health: a composite index comparing Colombian departments," IREA Working Papers 201122, University of Barcelona, Research Institute of Applied Economics, revised Oct 2011.
    33. Suriñach,Jordi & Duque,Juan Carlos & Royuela, Vicente, 2007. "Patrones De Publicación Internacional (Ssci) De Los Autores Afi liados A Universidades Españolas.En El Ámbito Económicoempresarial(1994-2004)," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 25, pages 277-310, Abril.
    34. Yongmin Chen & Scott J Savage, 2011. "The Effects of Competition on the Price for Cable Modem Internet Access," The Review of Economics and Statistics, MIT Press, pages 201-217.
    35. Distaso, Walter & Lupi, Paolo & Manenti, Fabio M., 2006. "Platform competition and broadband uptake: Theory and empirical evidence from the European union," Information Economics and Policy, Elsevier, vol. 18(1), pages 87-106, March.
    36. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    37. Peter Claeys & Fabio Manca, 2011. "A missing spatial link in institutional quality," Applied Economics Letters, Taylor & Francis Journals, vol. 18(3), pages 223-227.
    38. Fageda, Xavier & Flores-Fillol, Ricardo, 2012. "Air services on thin routes: Regional versus low-cost airlines," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 702-714.
    39. Syed A. Basher & Josep Lluís Carrion-i-Silvestre, 2007. "Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence," IREA Working Papers 200710, University of Barcelona, Research Institute of Applied Economics, revised May 2007.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kuangnen Cheng & Hui-Ping Chen & Jason Lee, 2015. "Competition behavior in service frequency for U.S. airlines," Service Business, Springer;Pan-Pacific Business Association, vol. 9(1), pages 1-16, March.
    2. Ofelia Betancor & Juan Luis Jiménez, 2011. "When trains go faster than planes: the strategic reaction of airlines in Spain," ERSA conference papers ersa11p295, European Regional Science Association.

    More about this item

    Keywords

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

    JEL classification:

    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ira:wpaper:201007. 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: (Alicia García). General contact details of provider: http://edirc.repec.org/data/feubaes.html .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.