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A Cournot model for analysing the effects of an open skies agreement

Author

Listed:
  • Vera Alves

    (Universidade do Porto)

  • Rosa Forte

    (Faculdade de Economia, Universidade do Porto, and cef.up)

Abstract

In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we developed a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement. Based on the model developed it can be concluded that the prices on international market segments where competition increases should decline after market liberalisation, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes after the agreement, leading to decreased profits.

Suggested Citation

  • Vera Alves & Rosa Forte, 2013. "A Cournot model for analysing the effects of an open skies agreement," CEF.UP Working Papers 1311, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:1311
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    References listed on IDEAS

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    1. Adler, Nicole & Hashai, Niron, 2005. "Effect of open skies in the Middle East region," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(10), pages 878-894, December.
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    Cited by:

    1. Christidis, Panayotis, 2016. "Four shades of Open Skies: European Union and four main external partners," Journal of Transport Geography, Elsevier, vol. 50(C), pages 105-114.
    2. Tello Contreras, Juan, 2017. "An Analysis Of The Open Skies Policy And Its Effects On The Tourism Industry In Mexico," Journal of Tourism, Sustainability and Well-being, Cinturs - Research Centre for Tourism, Sustainability and Well-being, University of Algarve, vol. 5(4), pages 376-399.
    3. Chao, Ching-Cheng & Li, Ru-Guo, 2017. "Effects of cargo types and load efficiency on airline cargo revenues," Journal of Air Transport Management, Elsevier, vol. 61(C), pages 26-33.

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    More about this item

    Keywords

    Open Skies agreement; Cournot model; Effects on prices; Firms’ profits.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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