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Hub Premium, Airport Dominance and Market Power in the European Airline Industry

Using evidence from an original dataset of more than 12 million fares, this study sheds light on two issues relating to the pricing behaviour of the main European airlines: 1) the extent to which an airline’s dominant position at the origin airport, at the route and the city-pair level affects the airlines’ market power; 2) whether fares follow a monotonic time path consistent with the pursuing of an inter-temporal price discrimination strategy. Our estimates reveal that enjoying a dominant position within a route is conducive to higher fares, possibly because of the limited size of many “natural monopoly” routes that facilitate the incumbent’s engagement in a limit pricing strategy. On the contrary, a larger share within a city-pair does not seem to facilitate the exercise of market power, thereby suggesting the existence of a large degree of substitutability between the routes in a city-pair.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/WP_Piga_Bachis_RPE_article.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_11.

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Date of creation: Apr 2007
Date of revision: Apr 2007
Handle: RePEc:lbo:lbowps:2007_11
Contact details of provider: Postal: Loughborough, Leicestershire, LE11 3TU
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Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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