Contestability and public concern about airfares: A case study in the Canary Islands

Javier Campos, Juan Luis Jiménez, Jordi Perdiguero

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

This paper studies - both from a theoretical and empirical perspective - a case of contestability in the Canary Islands' domestic air transport market. We show how after the exit of its rival in an initially duopolistic market, the remaining airline did not increase its prices in order not to provoke the entry of new rivals. According to our view, this result was explained by the 'public concern' that was created about the incumbent's behaviour and its attempt of presenting itself as a benevolent monopolist. However, its strategy failed and a new operator finally entered the market, with a subsequent drop in average prices. We prove our hypothesis by developing a theoretical multi-route oligopolistic model with differentiated services and by testing its implications using several difference-in-difference econometric techniques on a monthly prices database collected in 2012-2013.

Original languageEnglish
Pages (from-to)180-186
Number of pages7
JournalTransport Policy
Volume42
DOIs
Publication statusPublished - 1 Aug 2015

Keywords

  • Air transport
  • Canary Islands
  • Difference in difference
  • Entry and exit

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