Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities

Marco Alderighi, Alessandro Cento, Peter Nijkamp and Piet Rietveld
Additional contact information
Marco Alderighi: Universita della Valle d'Aosta, Aosta, Italy; Universita Bocconi, Italy
Alessandro Cento: KLM Royal Dutch Airlines, Milano, Italy

No 11-118/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper presents a model of second-degree price discrimination and inter-group effects to describe the full-service pricing behaviour in the passenger aviation market. Consumer heterogeneity is assumed on both a horizontal and a vertical dimension, while various distinct market structures, some of which include low-cost carriers (LCCs), are considered. In the theoretical model framework, we derive that the rivalry between full-service carriers (FSCs) reduces fare differences between the business and leisure segments. Furthermore, the presence of LCCs increases fare gaps between leisure and business travellers, and it also induces FSCs to decrease fares in the leisure segment and eventually to increase them in the business one. This last outcome emerges from a change in passenger arrangements caused by inter-group effects. In our empirical analysis, we use data on published airfares of Lufthansa, British Airways, KLM and Alitalia for the main city-pairs from Italy to Germany, the UK and the Netherlands. Our results show that the empirical results provide support for our theoretical propositions.

Keywords: Passenger aviation market; Price discrimination; Low-cost carriers (search for similar items in EconPapers)
JEL-codes: D4 L1 L93 (search for similar items in EconPapers)
Date: 2011-08-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://papers.tinbergen.nl/11118.pdf (application/pdf)

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:tin:wpaper:20110118

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().