Air transport subsidies for resident passengers: The unexpected effects on competition

M. Pilar Socorro and Ofelia Betancor

Research in Transportation Economics, 2020, vol. 79, issue C

Abstract: Subsidies for resident passengers aim to promote air connectivity in remote areas. The European Union allows these subsidies to passengers living in European outermost regions and other specific regions. This paper analyses the effects of this kind of subsidies on the ticket price and level of competition. If there is no competition in the market, the monopoly airline increases the ticket price to capture part of residents’ subsidy and, thus, non-residents will be worse off. However, when the regulator raises the amount of the subsidy, there may be an unexpected effect on competition: a potential entrant may find the entry profitable, spurring competition and air connectivity. With competition, the non-desirable effects of granting a subsidy only for residents are mitigated. However, this latter case is only possible if the proportion of resident passengers in the route is high enough.

Keywords: Subsidy; Residents; Non-residents; Ticket price; Competition (search for similar items in EconPapers)
JEL-codes: H29 L12 L93 R48 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0739885919302847
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:retrec:v:79:y:2020:i:c:s0739885919302847

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_2&version=01

DOI: 10.1016/j.retrec.2019.100772

Access Statistics for this article

Research in Transportation Economics is currently edited by M. Dresner

More articles in Research in Transportation Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().