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Low-Cost Entry, Inter-Firm Rivalry, and Welfare Implications in Large U.S. Air Markets

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  • Hideki Murakami

    (Graduate School of Business Administration, Kobe University)

Abstract

In this paper we analyze empirically the patterns of inter-firm rivalry between low-cost carriers (LCCs) and full-service carriers (FSCs) by carrier and airport base, and demonstrate what the social welfare gains were, using 1163 samples of U.S. cross-sectional data of 1998. Our main findings are: (1) that both LCCs and FSCs maintained higher price-cost margins especially when LCCs used secondary airports, (2) that total gains of welfare were 25.5 million USD for our dataset, and 90% of welfare gains came from the gain in consumer surplus, and (3) that LCCs sometimes set more-than-monopoly prices instead of profit-maximizing ones.

Suggested Citation

  • Hideki Murakami, 2008. "Low-Cost Entry, Inter-Firm Rivalry, and Welfare Implications in Large U.S. Air Markets," Discussion Papers 2008-36, Kobe University, Graduate School of Business Administration.
    • Handle: RePEc:kbb:dpaper:2008-36
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    File URL: https://www.b.kobe-u.ac.jp/papers_files/2008_36.pdf
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    References listed on IDEAS

    as
    1. Xiaowen Fu & Mark Lijesen & Tae H. Oum, 2006. "An Analysis of Airport Pricing and Regulation in the Presence of Competition Between Full Service Airlines and Low Cost Carriers," Journal of Transport Economics and Policy, University of Bath, vol. 40(3), pages 425-447, September.
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