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Assessing predation in airline markets with low-fare competition

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  • Gorin, Thomas
  • Belobaba, Peter

Abstract

Assessment of unfair competitive practices in airline markets has traditionally been based on the analysis of changes in average fares, revenue and traffic following low-fare entry. This paper demonstrates the severe limitations of using such measures. In particular, our case studies show that despite very different perceptions by some analysts of apparent incumbent carrier response to entry, average fares, revenues and traffic measures showed very similar patterns of change. We then use a competitive airline market simulation to illustrate the importance of often ignored factors - revenue management and the flows of connecting network passengers on the flight legs affected by low-fare entry - in explaining the effects of entry on these aggregate measures of airline performance. These simulation results further reinforce the danger in using such measures as indicators of predatory behavior in airline markets.

Suggested Citation

  • Gorin, Thomas & Belobaba, Peter, 2008. "Assessing predation in airline markets with low-fare competition," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(5), pages 784-798, June.
    • Handle: RePEc:eee:transa:v:42:y:2008:i:5:p:784-798
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    Cited by:

    1. Fukushi, Mitsuyoshi & Delgado, Felipe & Raveau, Sebastián & Santos, Bruno F., 2022. "CHAIRS: A choice-based air transport simulator applied to airline competition and revenue management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 155(C), pages 297-315.
    2. Zhang, Qiong & Yang, Hangjun & Wang, Qiang & Zhang, Anming, 2014. "Market power and its determinants in the Chinese airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 1-13.
    3. Takebayashi, Mikio, 2013. "Network competition and the difference in operating cost: Model analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 57(C), pages 85-94.
    4. Michael D. Wittman & Peter P. Belobaba, 2018. "Customized dynamic pricing of airline fare products," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 17(2), pages 78-90, April.
    5. Kappes, Jan Willem & Merkert, Rico, 2013. "Barriers to entry into European aviation markets revisited: A review and analysis of managerial perceptions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 57(C), pages 58-69.
    6. Diaconu Maxim Laura, 2012. "The Development of the Low-Cost Carriers’ Business Models. Southwest Airlines Case Study," Scientific Annals of Economics and Business, Sciendo, vol. 59(1), pages 231-238, July.
    7. Ginieis, Matías & Sánchez-Rebull, María-Victoria & Campa-Planas, Fernando, 2012. "The academic journal literature on air transport: Analysis using systematic literature review methodology," Journal of Air Transport Management, Elsevier, vol. 19(C), pages 31-35.

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