Hub Premium, Airport Dominance and Market Power in the European Airline Industry

Claudio Piga () and Enrico Bachis ()

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: Using evidence from an original dataset of more than 12 million fares, this study sheds light on two issues relating to the pricing behaviour of the main European airlines: 1) the extent to which an airline’s dominant position at the origin airport, at the route and the city-pair level affects the airlines’ market power; 2) whether fares follow a monotonic time path consistent with the pursuing of an inter-temporal price discrimination strategy. Our estimates reveal that enjoying a dominant position within a route is conducive to higher fares, possibly because of the limited size of many “natural monopoly” routes that facilitate the incumbent’s engagement in a limit pricing strategy. On the contrary, a larger share within a city-pair does not seem to facilitate the exercise of market power, thereby suggesting the existence of a large degree of substitutability between the routes in a city-pair.

Keywords: on-line pricing; price discrimination; dispersion; yield management. (search for similar items in EconPapers)
JEL-codes: L11 L13 L93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-eec, nep-ind, nep-mic, nep-tur and nep-ure
Date: 2007-04, Revised 2007-04

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http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lb ... chis_RPE_article.pdf

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Journal Article: Hub Premium, Airport Dominance and Market Power in the European Airline Industry (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:lbo:lbowps:2007_11

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