The entry of a low cost carrier onto a route leads to lower prices and higher passenger counts, both on other routes at the same airport and on competing routes at neighbouring airports. These effects indicate that consumer gains from the entry of low cost carriers are higher than previously estimated. A case study and an econometric analysis are used to estimate these effects.
Topic: 22. Competition
This paper explores the possibility that the fortress hub is a consequence of the nature of airline hub-spoke rivalry. Entry into a competitor’s local market may reduce the entrant’s profit in his own market. As a result, there is a deterrent to entry if the negative effects are strong enough. The paper also examines the impacts of local competition on consumer surplus and total social surplus.
Using a two-countries/two-airlines framework, three different competition scenarios are analysed. These reflect the new EU competition rules. The results suggest that the use of hub-and-spoke networks results in significant welfare gains. In addition, the model shows that cross-border mergers may increase net social welfare.
High concentration in the less-than-truckload motor carrier industry is examined from the perspective of the differentiated product theory. Under the condition that cost increases of high service quality are within the limits that shippers are willing to pay, only a small number of competing carriers can co-exist.
This paper examines the pattern of a firm’s pricing rivalry and its associated price elasticities in a set of duopoly routes. The parameters of the marginal cost function are also estimated. This model allows for free variation of estimated “conduct parameters” and price elasticities across airline routes.
An economic model of competition is used to show whether a competitive entry opportunity exists in a bus market where entry has occurred. This approach is compared with a more conventional “rule-of-reason” approach used by the competition authorities to investigate predation in the town of Inverness.
The aim of entry is to capture monopoly profits by displacing the incumbent or colluding. However, entrants have generally failed to do this. Incumbents have better local knowledge, and are often financially stronger. Contrary to the Government’s expectation on deregulation, the effect of potential entrants in controlling monopoly operators is weak.
A Comment on the paper by J.E. Davies in the September issue of the Journal and a rejoinder by the author.
Since rail rates in the US were partially deregulated, they have been affected more strongly by competition and less by costs. The strength of competition from trucks depends on fuel prices and improvements in technology, and, on the demand side, on the availability of rail cars.
The authors find that a competitive equilibrium will have only two firms, providing that services of different quality are at different fares. They consider factors influencing consumers’ welfare under competition and where there is a public monopolist. Where there is already competition between buses and taxis, there may be no scope for minibuses as a third competitor.