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Assessing Predation in Airline Markets with Low-Fare Competition

Gorin, Thomas and Belobaba, Peter (2005) Assessing Predation in Airline Markets with Low-Fare Competition. [Industry Studies Working Paper:2005-07]



Assessment of unfair competitive practices in airline markets has traditionally been based on the analysis of changes in average fares, revenue and traffic following low-fare entry. This paper demonstrates the severe limitations of using such measures. In particular, our case studies show that despite very different perceptions by some analysts of apparent incumbent carrier response to entry, average fares, revenues and traffic measures showed very similar patterns of change in the cases studied. We then use a competitive airline market simulation to illustrate the importance of often ignored factors – revenue management and the flows of connecting network passengers on the flight legs affected by low-fare entry – in explaining the effects of entry on these aggregate measures of airline performance. These simulations results further reinforce the danger in using such measures as indicators of predatory behavior in airline markets.

Industry Studies Series #:2005-07
Item Type:Industry Studies Working Paper
Uncontrolled Keywords:industry studies, industry studies working paper, industry studies association, industry studies research
ID Code:63
Deposited By:Mr Robin Peterson
Deposited On:18 Feb 2010 13:47
Last Modified:07 Jun 2010 10:44

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