When Hotelling meets Vickrey. Service timing and spatial asymmetry in the airline industry

André de Palma (), Carlos Ordás Criado () and Laingo Randrianarisoa

Journal of Urban Economics, 2018, vol. 105, issue C, 88-106

Abstract: This paper analyzes rivalry between transport facilities in a model that includes two sources of horizontal differentiation: geographical location and departure time. We explore how both sources influence facility fees and the price of the service offered by downstream carriers. Travelers’ costs include a fare, a transportation cost to the facility and a schedule delay cost. The interactions in the facility-carrier model are represented as a sequential three-stage game in fees, times and fares. Duopolistic competition leads to an identical departure time across carriers when their operating costs do not vary with the time of day, but generally leads to distinct service times when this cost is time-dependent. We also find that higher per-passenger commercial revenue at one facility induces a lower fee charged by both facilities to their carrier and a lower fare charged by both carriers at their departure facility, while a lower marginal operating cost for one carrier implies a higher fee at its departure facility, a lower fee at the rival carrier’s facility and a lower fare at both facilities. Finally, we show that the socially optimal schedule differentiation decreases in the distance between facilities and in the unit transportation cost incurred by travelers, and increases in the unit schedule delay cost incurred by travelers as well as in the marginal time cost faced by carriers.

Keywords: Airline and airport; Facility competition; Horizontal differentiation; Spatial asymmetry; Scheduling (search for similar items in EconPapers)
JEL-codes: D43 L13 L22 L93 R4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: When Hotelling meets Vickrey Service timing and spatial asymmetry in the airline industry * (2017)
Working Paper: When Hotelling meets Vickrey: Service timing and spatial asymmetry in the airline industry (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:105:y:2018:i:c:p:88-106

DOI: 10.1016/j.jue.2018.01.003

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