The Entry of Low-Cost Airlines: Price Competition in the European Airline Market

Marco Alderighi (), Alessandro Cento (), Peter Nijkamp and Piet Rietveld ()
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Marco Alderighi: CERTeT - Bocconi University, Milan
Alessandro Cento: KLM Royal Dutch Airlines, Revenue Management Dept, Milan

No 04-074/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper investigates the response of full service carriers (FSCs) to the entry of low-cost carriers (LCCs). We develop a model of airline competition, which accommodates various market structures, some of which include low-cost players. Using data on published airfares of Lufthansa, British Airways, Alitalia and KLM for the main city-pairs from Italy to the rest of Europe, our statistical modelling resu1ts confirm the conclusions of the theoretical model. Competition among FSCs appears to affect the price levels of business and leisure segments asymmetrically. In contrast, competition with LCCs reduces the fares of FSCs in all classes proportionally.

Keywords: Pricing strategies; yield management; low-cost carriers; European airline market (search for similar items in EconPapers)
JEL-codes: D43 L15 L93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-eec, nep-ind and nep-mic
Date: 2004-07-02
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:uvatin:20040074

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