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Regulation and Incentives in European Aviation

Author

Listed:
  • Philippe Gagnepain

    (Departamento de Economía - UC3M - Universidad Carlos III de Madrid [Madrid])

  • Pedro Marin

    (Departamento de Economía - UC3M - Universidad Carlos III de Madrid [Madrid])

Abstract

We study the effect of liberalization on costs and competition in the European airline industry. We construct and estimate a model that includes demand, capacity, and cost equations. The latter accounts for inefficiency and cost-reducing effort. We show that failure to account for the choice of effort would lead to biased estimates of efficiency and competition in the industry. We also find that the last European Union package of deregulatory measures has led to significant efficiency improvements and has fostered competition.

Suggested Citation

  • Philippe Gagnepain & Pedro Marin, 2006. "Regulation and Incentives in European Aviation," Post-Print hal-00622844, HAL.
    • Handle: RePEc:hal:journl:hal-00622844
    Note: View the original document on HAL open archive server: https://hal.science/hal-00622844
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    References listed on IDEAS

    as
    1. Philippe Gagnepain & Marc Ivaldi, 2002. "Stochastic Frontiers and Asymmetric Information Models," Journal of Productivity Analysis, Springer, vol. 18(2), pages 145-159, September.
    2. Philippe Gagnepain & Marc Ivaldi, 2002. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 605-629, Winter.
    3. Marin, Pedro L., 1998. "Productivity differences in the airline industry: Partial deregulation versus short run protection," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 395-414, July.
    4. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    5. Ng, Charles K & Seabright, Paul, 2001. "Competition, Privatisation and Productive Efficiency: Evidence from the Airline Industry," Economic Journal, Royal Economic Society, vol. 111(473), pages 591-619, July.
    6. Marin, Pedro L, 1995. "Competition in European Aviation: Pricing Policy and Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 141-159, June.
    7. David Genesove & Wallace P. Mullin, 1998. "Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 355-377, Summer.
    8. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    9. Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 2002. "Endogenous Costs and Price-Cost Margins," Discussion Papers of DIW Berlin 294, DIW Berlin, German Institute for Economic Research.
    10. Roller, Lars-Hendrik & Sickles, Robin C., 2000. "Capacity and product market competition: measuring market power in a 'puppy-dog' industry," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 845-865, August.
    11. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    12. Neven, Damien J. & Roller, Lars-Hendrik, 1996. "Rent sharing in the European airline industry," European Economic Review, Elsevier, vol. 40(3-5), pages 933-940, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bourjade, Sylvain & Muller-Vibes, Catherine, 2023. "Optimal leasing and airlines' cost efficiency: A stochastic frontier analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 176(C).
    2. Marín Uribe, Pedro Luis & Gagnepain, Philippe, 2005. "Alliances in the Air: Some Worldwide Evidence," CEPR Discussion Papers 5063, C.E.P.R. Discussion Papers.
    3. Philippe Gagnepain & Pedro Marín, 2010. "The effects of airline alliances: what do the aggregate data say?," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(3), pages 251-276, July.
    4. Ivaldi, Marc & Sokullu, Senay & Toru-Delibasi, Tuba, 2015. "Airport Prices in a Two-Sided Market Setting: Major US Airports," TSE Working Papers 15-587, Toulouse School of Economics (TSE).
    5. Gagnepain, Philippe & Ivaldi, Marc, 2005. "Measuring Inefficiencies in Transport Systems: Between Technology and Incentives," IDEI Working Papers 377, Institut d'Économie Industrielle (IDEI), Toulouse.
    6. Philippe Gagnepain & Pedro Marin, 2010. "The effects of airline alliances: What do the aggregate data say?," Post-Print hal-00622831, HAL.
    7. Ruiz-Moreno, Felipe & Mas-Ruiz, Francisco J. & Sancho-Esper, Franco M., 2021. "Strategic groups and product differentiation: Evidence from the Spanish airline market deregulation," Research in Transportation Economics, Elsevier, vol. 90(C).
    8. Paul W. Dobson & Claudio A. Piga, 2009. "Mergers and Business Model Assimilation: Evidence from Low-Cost Airlines Takeovers," Discussion Paper Series 2009_2, Department of Economics, Loughborough University, revised Feb 2009.
    9. Anushka Wijesinha & Deshal de Mel, 2012. "Liberalization of Air Services in South Asia: Prospects and Challenges," Chapters, in: Sultan Hafeez Rahman & Sridhar Khatri & Hans-Peter Brunner (ed.), Regional Integration and Economic Development in South Asia, chapter 5, Edward Elgar Publishing.
    10. Miguel Urdánoz & Catherine Vibes, 2013. "Regulation and cost efficiency in the European railways industry," Journal of Productivity Analysis, Springer, vol. 39(3), pages 217-230, June.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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