Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2011-08-09
Number: 11-118/3
Author-Name: Marco Alderighi
Author-Workplace-Name: Universita  della Valle d'Aosta, Aosta, Italy; Universita Bocconi, Italy
Author-Name: Alessandro Cento
Author-Workplace-Name: KLM Royal Dutch Airlines, Milano, Italy
Author-Name: Peter Nijkamp
Author-Workplace-Name: VU University Amsterdam
Author-Name: Piet Rietveld
Author-Workplace-Name: VU University Amsterdam
Title: Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities
Abstract: This paper presents a model of second-degree price discrimination and inter-group effects to describe the full-service pricing behaviour in the passenger aviation market. Consumer heterogeneity is assumed on both a horizontal and a vertical dimension, while various distinct market structures, some of which include low-cost carriers (LCCs), are considered. In the theoretical model framework, we derive that the rivalry between full-service carriers (FSCs) reduces fare differences between the business and leisure segments. Furthermore, the presence of LCCs increases fare gaps between leisure and business travellers, and it also induces FSCs to decrease fares in the leisure segment and eventually to increase them in the business one. This last outcome emerges from a change in passenger arrangements caused by inter-group effects. In our empirical analysis, we use data on published airfares of Lufthansa, British Airways, KLM and Alitalia for the main city-pairs from Italy to Germany, the UK and the Netherlands. Our results show that the empirical results provide support for our theoretical propositions.
Classification-JEL: L1, L93, D4
Keywords: Passenger aviation market; Price discrimination; Low-cost carriers
File-Url: https://papers.tinbergen.nl/11118.pdf
File-Format: application/pdf
File-Size: 941468 bytes
Handle: RePEc:tin:wpaper:20110118