DP776 Competition Through Fares and Fare Accesses on the Air Transport Market

Author(s): Martino Ajmone Marsan, Fiorella Kostoris Padoa Schioppa
Publication Date: February 1993
Keyword(s): Air Transportation, Deregulation, Fares
JEL(s): L9, L93
Programme Areas: Applied Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=776

In the past four years, and under pressure from the EC authorities, most constraints on air transport prices in the European Community have been removed. This paper concentrates on the effects of increased competition on fare behaviour. It uses an unpublished 1990 dataset on eight fare categories adopted by Alitalia on medium-range international routes (Europe, North Africa, Middle East). Using an index of competitive pressure on Alitalia, we find that competition is stronger in the EC than elsewhere in the medium-range markets. Moreover, increases in the degree of competition cause average fares to fall, and fare variability to increase, as new lower fares are introduced, or passengers are allowed easier access to low fares which already exist. In non-EC medium-range (still regulated) markets, the determination of fares does not seem to depend on the number of carriers serving each route, as the presence of many `competitors' -- who in fact collude -- may even suggest the existence of a market where prices can actually increase.