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Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry

Giovanni Tabacco

Swansea University Author: Giovanni Tabacco

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DOI (Published version): 10.1007/978-3-319-46729-0

Abstract

The subject of this book comprises original research about a detailed empirical investigation of market structure of airline city pair markets and competition between airline firms. The core of this research monograph consists of three essay-style empirical chapters. After an introductory chapter, c...

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ISBN: 9783319467283; 978-3-319-83572-3 978-3-319-46729-0
Published: Cham. Switzerland Palgrave Macmillan 2016
Online Access: https://www.palgrave.com/gp/book/9783319467283
URI: https://cronfa.swan.ac.uk/Record/cronfa29181
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fullrecord <?xml version="1.0"?><rfc1807><datestamp>2021-07-06T16:31:25.0964937</datestamp><bib-version>v2</bib-version><id>29181</id><entry>2016-07-09</entry><title>Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry</title><swanseaauthors><author><sid>b708a45f07438bf7048fc3448882d1f5</sid><firstname>Giovanni</firstname><surname>Tabacco</surname><name>Giovanni Tabacco</name><active>true</active><ethesisStudent>false</ethesisStudent></author></swanseaauthors><date>2016-07-09</date><deptcode>BEC</deptcode><abstract>The subject of this book comprises original research about a detailed empirical investigation of market structure of airline city pair markets and competition between airline firms. The core of this research monograph consists of three essay-style empirical chapters. After an introductory chapter, chapter 2 proposes empirical evidence that the industry is a natural oligopoly: each airline market is dominated by one to three airline carriers, regardless of market size. Furthermore, I develop an econometric model of entry and market structure to explain economic driving forces that make airline city pair markets as natural oligopolies. Estimates suggest evidence that rival&#x2019;s airport presence lowers airline carrier&#x2019;s own city pair profitability. As a result, this piece of econometric evidence indicates that city pair market&#x2019;s entry hence concentration declines. In other words, airline carriers for means of enlarging number of destinations flown out of origin and destination points of each city pair market lead to a very concentrated market structure. At best of my knowledge, this is the first piece of empirical evidence on airline markets as natural oligopolies. In addition, this result helps uncovering the nature of competitive process; city pair markets as natural oligopolies are consistent with airline carriers competing on quality dimensions. Consequently, it aids identifying the competition models which represent an appropriate description of the airline industry; that is, competition models where service quality plays a crucial role. In chapter 3, I perform an empirical analysis to explain determinants of firm numbers and firms&#x2019; market share asymmetry. Looking separately at the two main dimensions of market concentration allows me to uncover information about the competitive process which may remain concealed if I was investigating only number of firms. Econometric estimates indicate that nature of competition is different in markets containing large hub airports; in particular, the evidence is suggestive of tougher product market competition in those city pairs with large hub airports and presence of top airlines.In chapter 4, I implement a game theoretic econometric model of market structure and entry with the following objective; to attempt an empirical test for market sharing agreements. In particular, I aim to gain insights on entry decisions of legacy as well as regional airlines into city pairs, therefore explaining market structure. Empirical evidence suggests that airline carrier&#x2019;s own airport presence increases city pair market profitability. The empirical analysis also addresses whether airline carriers deliberately prevent competition head-to-head within city pair markets. In other words, the hub and spoke model adopted in the US may be used as a device to strategically prevent or lessen competition in city pair markets. The gathered evidence is partly consistent with strategic behaviour of airline carriers in establishing market sharing agreements. This chapter, at best of my knowledge, represents the first attempt to empirically investigate such phenomenon of market sharing agreements. Finally, chapter 5 summarises main results and point to some directions for future potential expansion of this research.</abstract><type>Book</type><journal/><volume/><journalNumber/><paginationStart/><paginationEnd/><publisher>Palgrave Macmillan</publisher><placeOfPublication>Cham. Switzerland</placeOfPublication><isbnPrint>9783319467283; 978-3-319-83572-3</isbnPrint><isbnElectronic>978-3-319-46729-0</isbnElectronic><issnPrint/><issnElectronic/><keywords>airline, airlines United States, market structure, competition United States, market sharing agreements, business economics management, business economics industries and hospitality, travel and tourism, political economy, business strategy, service industries, management science, economic theory, industrial organisation, economics.</keywords><publishedDay>20</publishedDay><publishedMonth>11</publishedMonth><publishedYear>2016</publishedYear><publishedDate>2016-11-20</publishedDate><doi>10.1007/978-3-319-46729-0</doi><url>https://www.palgrave.com/gp/book/9783319467283</url><notes/><college>COLLEGE NANME</college><department>Economics</department><CollegeCode>COLLEGE CODE</CollegeCode><DepartmentCode>BEC</DepartmentCode><institution>Swansea University</institution><apcterm/><lastEdited>2021-07-06T16:31:25.0964937</lastEdited><Created>2016-07-09T11:30:57.8876706</Created><path><level id="1">Faculty of Humanities and Social Sciences</level><level id="2">School of Management</level></path><authors><author><firstname>Giovanni</firstname><surname>Tabacco</surname><order>1</order></author></authors><documents/><OutputDurs/></rfc1807>
spelling 2021-07-06T16:31:25.0964937 v2 29181 2016-07-09 Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry b708a45f07438bf7048fc3448882d1f5 Giovanni Tabacco Giovanni Tabacco true false 2016-07-09 BEC The subject of this book comprises original research about a detailed empirical investigation of market structure of airline city pair markets and competition between airline firms. The core of this research monograph consists of three essay-style empirical chapters. After an introductory chapter, chapter 2 proposes empirical evidence that the industry is a natural oligopoly: each airline market is dominated by one to three airline carriers, regardless of market size. Furthermore, I develop an econometric model of entry and market structure to explain economic driving forces that make airline city pair markets as natural oligopolies. Estimates suggest evidence that rival’s airport presence lowers airline carrier’s own city pair profitability. As a result, this piece of econometric evidence indicates that city pair market’s entry hence concentration declines. In other words, airline carriers for means of enlarging number of destinations flown out of origin and destination points of each city pair market lead to a very concentrated market structure. At best of my knowledge, this is the first piece of empirical evidence on airline markets as natural oligopolies. In addition, this result helps uncovering the nature of competitive process; city pair markets as natural oligopolies are consistent with airline carriers competing on quality dimensions. Consequently, it aids identifying the competition models which represent an appropriate description of the airline industry; that is, competition models where service quality plays a crucial role. In chapter 3, I perform an empirical analysis to explain determinants of firm numbers and firms’ market share asymmetry. Looking separately at the two main dimensions of market concentration allows me to uncover information about the competitive process which may remain concealed if I was investigating only number of firms. Econometric estimates indicate that nature of competition is different in markets containing large hub airports; in particular, the evidence is suggestive of tougher product market competition in those city pairs with large hub airports and presence of top airlines.In chapter 4, I implement a game theoretic econometric model of market structure and entry with the following objective; to attempt an empirical test for market sharing agreements. In particular, I aim to gain insights on entry decisions of legacy as well as regional airlines into city pairs, therefore explaining market structure. Empirical evidence suggests that airline carrier’s own airport presence increases city pair market profitability. The empirical analysis also addresses whether airline carriers deliberately prevent competition head-to-head within city pair markets. In other words, the hub and spoke model adopted in the US may be used as a device to strategically prevent or lessen competition in city pair markets. The gathered evidence is partly consistent with strategic behaviour of airline carriers in establishing market sharing agreements. This chapter, at best of my knowledge, represents the first attempt to empirically investigate such phenomenon of market sharing agreements. Finally, chapter 5 summarises main results and point to some directions for future potential expansion of this research. Book Palgrave Macmillan Cham. Switzerland 9783319467283; 978-3-319-83572-3 978-3-319-46729-0 airline, airlines United States, market structure, competition United States, market sharing agreements, business economics management, business economics industries and hospitality, travel and tourism, political economy, business strategy, service industries, management science, economic theory, industrial organisation, economics. 20 11 2016 2016-11-20 10.1007/978-3-319-46729-0 https://www.palgrave.com/gp/book/9783319467283 COLLEGE NANME Economics COLLEGE CODE BEC Swansea University 2021-07-06T16:31:25.0964937 2016-07-09T11:30:57.8876706 Faculty of Humanities and Social Sciences School of Management Giovanni Tabacco 1
title Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
spellingShingle Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
Giovanni Tabacco
title_short Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
title_full Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
title_fullStr Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
title_full_unstemmed Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
title_sort Airline Economics: An Empirical Analysis of Market Structure and Competition in the US Airline Industry
author_id_str_mv b708a45f07438bf7048fc3448882d1f5
author_id_fullname_str_mv b708a45f07438bf7048fc3448882d1f5_***_Giovanni Tabacco
author Giovanni Tabacco
author2 Giovanni Tabacco
format Book
publishDate 2016
institution Swansea University
isbn 9783319467283; 978-3-319-83572-3
978-3-319-46729-0
doi_str_mv 10.1007/978-3-319-46729-0
publisher Palgrave Macmillan
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management
url https://www.palgrave.com/gp/book/9783319467283
document_store_str 0
active_str 0
description The subject of this book comprises original research about a detailed empirical investigation of market structure of airline city pair markets and competition between airline firms. The core of this research monograph consists of three essay-style empirical chapters. After an introductory chapter, chapter 2 proposes empirical evidence that the industry is a natural oligopoly: each airline market is dominated by one to three airline carriers, regardless of market size. Furthermore, I develop an econometric model of entry and market structure to explain economic driving forces that make airline city pair markets as natural oligopolies. Estimates suggest evidence that rival’s airport presence lowers airline carrier’s own city pair profitability. As a result, this piece of econometric evidence indicates that city pair market’s entry hence concentration declines. In other words, airline carriers for means of enlarging number of destinations flown out of origin and destination points of each city pair market lead to a very concentrated market structure. At best of my knowledge, this is the first piece of empirical evidence on airline markets as natural oligopolies. In addition, this result helps uncovering the nature of competitive process; city pair markets as natural oligopolies are consistent with airline carriers competing on quality dimensions. Consequently, it aids identifying the competition models which represent an appropriate description of the airline industry; that is, competition models where service quality plays a crucial role. In chapter 3, I perform an empirical analysis to explain determinants of firm numbers and firms’ market share asymmetry. Looking separately at the two main dimensions of market concentration allows me to uncover information about the competitive process which may remain concealed if I was investigating only number of firms. Econometric estimates indicate that nature of competition is different in markets containing large hub airports; in particular, the evidence is suggestive of tougher product market competition in those city pairs with large hub airports and presence of top airlines.In chapter 4, I implement a game theoretic econometric model of market structure and entry with the following objective; to attempt an empirical test for market sharing agreements. In particular, I aim to gain insights on entry decisions of legacy as well as regional airlines into city pairs, therefore explaining market structure. Empirical evidence suggests that airline carrier’s own airport presence increases city pair market profitability. The empirical analysis also addresses whether airline carriers deliberately prevent competition head-to-head within city pair markets. In other words, the hub and spoke model adopted in the US may be used as a device to strategically prevent or lessen competition in city pair markets. The gathered evidence is partly consistent with strategic behaviour of airline carriers in establishing market sharing agreements. This chapter, at best of my knowledge, represents the first attempt to empirically investigate such phenomenon of market sharing agreements. Finally, chapter 5 summarises main results and point to some directions for future potential expansion of this research.
published_date 2016-11-20T03:35:34Z
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score 11.035655

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