Prices and Departures in European Domestic Aviation Markets

ISSN： 0889-938X

Source： Review of Industrial Organization, Vol.24, Iss.1, 2004-02, pp. : 37-49

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Abstract

Using data on 172 domestic city-pair markets in eight European countries, we investigate the effect of the market structure on airlines choices of departures and prices. We find that flag carriers have a higher number of departures than other airlines and that it is more likely that flag carriers are monopolists. At the same time flag carriers do not have a higher ticket price than other airlines. The influence of market power, measured with the Herfindahl index, does not have a significant effect on ticket prices, but a significant effect on the number of departures: decreased market concentration and an increased number of airlines results in increased aggregate frequencies. Comparing the predicted ticket prices, at sample mean, between monopoly and non-monopoly routes we can reject the hypothesis of differences in equilibrium price. However, the predicted aggregate number of departures, calculated at sample mean, is significantly higher at non-monopoly routes compared with monopoly routes.