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

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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
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Loughborough, Leicestershire, LE11 3TU

Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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