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Airline Competition and Domestic U.S. Airfares: A Comprehensive Reappraisal

February 17, 2011 Comments off

Airline Competition and Domestic U.S. Airfares: A Comprehensive Reappraisal (PDF)
Source: LECG, LLC (via University of California-Irvine)

This paper extends recent research on the fare impacts of low-cost carriers, incorporating its adjacent-airport approach to offer a comprehensive picture of the competitive effects of both legacy carriers and low-cost carriers. The analysis measures the impact of in-market (i.e., airport-pair) competition and adjacent competition for both types of carriers, while also capturing the impact of potential competition from low-cost carriers. Moreover, this comprehensive approach is applied separately to two different types of markets, nonstop and connecting, that have not been simultaneously treated before within a single study. The results show that most forms of legacy carrier competition have weak effects on fares. Low-cost carrier competition, on the other hand, has dramatic fare impacts, whether it occurs on the airport-pair, at adjacent airports, or as potential competition.

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