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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
    as

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    File URL: http://www.ub.edu/irea/working_papers/2010/201007.pdf
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    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

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