IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/12072.html
   My bibliography  Save this paper

The value of bluer skies: How much do consumers gain from entry by JetBlue Airways in long-haul US Airline Markets?

Author

Listed:
  • Hüschelrath, Kai
  • Müller, Kathrin

Abstract

The paper estimates the effects of entry by low-cost carrier JetBlue Airways in long-haul domestic U.S. airline markets. For the period from 2000 to 2009, we find that non-stop fares were on average about 21 percent lower post-entry; however, the magnitude of the price effect depends on the pre-entry market structure. While entry into monopoly markets triggered an average price decrease of about 25 percent, the respective average price drop for entries into oligopoly markets lied at about 15 percent. Based on additional estimates of the price and income elasticities for long-haul domestic U.S. flights, we conclude that JetBlue's long-haul entries alone led to an increase in consumer welfare of about USD 661 million.

Suggested Citation

  • Hüschelrath, Kai & Müller, Kathrin, 2012. "The value of bluer skies: How much do consumers gain from entry by JetBlue Airways in long-haul US Airline Markets?," ZEW Discussion Papers 12-072, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:12072
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/66783/1/729897362.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
    2. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1611-1633.
    3. Charles Boguslaski & Harumi Ito & Darin Lee, 2004. "Entry Patterns in the Southwest Airlines Route System," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(3), pages 317-350, August.
    4. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    5. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 1-54.
    6. Joskow, Andrew S. & Werden, Gregory J. & Johnson, Richard L., 1994. "Entry, exit, and performance in airline markets," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 457-471, December.
    7. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
    8. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1074-1089, September.
    9. Daraban, Bogdan & Fournier, Gary M., 2008. "Incumbent responses to low-cost airline entry and exit: A spatial autoregressive panel data analysis," Research in Transportation Economics, Elsevier, vol. 24(1), pages 15-24.
    10. Steven A. Morrison, 2001. "Actual, Adjacent, and Potential Competition Estimating the Full Effect of Southwest Airlines," Journal of Transport Economics and Policy, University of Bath, vol. 35(2), pages 239-256, May.
    11. Michael D. Whinston & Scott C. Collins, 1992. "Entry and Competitive Structure in Deregulated Airline Markets: An Event Study Analysis of People Express," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 445-462, Winter.
    12. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kai Hüschelrath & Kathrin Müller, 2013. "Patterns and Effects of Entry in U.S. Airline Markets," Journal of Industry, Competition and Trade, Springer, vol. 13(2), pages 221-253, June.
    2. Bilotkach, Volodymyr & Kawata, Keisuke & Kim, Tae Seung & Park, Jaehong & Purwandono, Putut & Yoshida, Yuichiro, 2019. "Quantifying the impact of low-cost carriers on international air passenger movements to and from major airports in Asia," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 28-57.
    3. Dürr, Niklas S. & Hüschelrath, Kai, 2016. "Deregulation and the determinants of entry: Evidence from the German interurban bus industry," ZEW Discussion Papers 16-054, ZEW - Leibniz Centre for European Economic Research.
    4. Bilotkach, Volodymyr & Mueller, Juergen & Németh, Adél, 2014. "Estimating the consumer welfare effects of de-hubbing: The case of Malév Hungarian Airlines," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 66(C), pages 51-65.
    5. Oliveira, Alessandro V.M., 2008. "An empirical model of low-cost carrier entry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(4), pages 673-695, May.
    6. Ren, Junqiushi, 2020. "Fare impacts of Southwest Airlines: A comparison of nonstop and connecting flights," Journal of Air Transport Management, Elsevier, vol. 84(C).
    7. Maria José Gil-Moltó & Claudio A. Piga, 2007. "Entry and Exit in a Liberalised Market," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 3-38, January-F.
    8. Gayle, Philip G. & Wu, Chi-Yin, 2013. "A re-examination of incumbents’ response to the threat of entry: Evidence from the airline industry," Economics of Transportation, Elsevier, vol. 2(4), pages 119-130.
    9. Christian Bontemps & Raquel Menezes Bezerra Sampaio, 2020. "Entry games for the airline industry," Post-Print hal-02137358, HAL.
    10. Zou, Li & Yu, Chunyan, 2020. "The evolving market entry strategy: A comparative study of Southwest and JetBlue," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 682-695.
    11. Kerkemezos, Yannis & Pennings, Enrico & Karreman, Bas & van Reeven, Peran, 2023. "Price asymmetries and the path dependence of market power: Evidence from the U.S. airline industry," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    12. Fu, Xiaowen & Jin, Huan & Liu, Shaoxuan & Oum, Tae H. & Yan, Jia, 2019. "Exploring network effects of point-to-point networks: An investigation of the spatial patterns of Southwest Airlines’ network," Transport Policy, Elsevier, vol. 76(C), pages 36-45.
    13. Federico Ciliberto & Zhou Zhang, 2017. "Multiple Equilibria And Deterrence In Airline Markets," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 319-338, January.
    14. Menezes Bezerra Sampaio, Raquel & Urdanoz, Miguel, 2022. "Airlines' cooperation in the US domestic market: Measuring the evolution of price gaps," Transportation Research Part A: Policy and Practice, Elsevier, vol. 166(C), pages 424-443.
    15. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
    16. Philip G. Gayle & Xin Xie, 2018. "Entry Deterrence And Strategic Alliances," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1898-1924, July.
    17. 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.
    18. Bettini, Humberto F.A.J. & Oliveira, Alessandro V.M., 2008. "Airline capacity setting after re-regulation: The Brazilian case in the early 2000s," Journal of Air Transport Management, Elsevier, vol. 14(6), pages 289-292.
    19. Alexandra Belova & Philippe Gagnepain & Stéphane Gauthier, 2020. "An assessment of Nash equilibria in the airline industry," Working Papers halshs-02932780, HAL.
    20. Klein, Klemens & Albers, Sascha & Allroggen, Florian & Malina, Robert, 2015. "Serving vs. settling: What drives the establishment of low-cost carriers’ foreign bases?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 17-30.

    More about this item

    Keywords

    airline industry; entry; low-cost carrier; consumer welfare effects;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    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:zbw:zewdip:12072. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zemande.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.