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Airline Pricing Behaviour Under Limited Intermodal Competition

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Document pages: 34 pages

Abstract: This paper explores airline pricing behaviour dealing with two issues. The first is to measure the extent to which intramodal competition influences fares charged to travellers. The second is to shed light on fares intertemporal profile to verify if airlines undertake intertemporal price discrimination (IPD) strategies and whether IPD is of monopolistic-type or competitive-type. Differently from past contributions, we study airline pricing behaviour removing the influence of intermodal competition. To this scope, we focus on the southern Italian market since it is less accessible by other modes of transport, hence airline pricing strategies are the straight results of air-related competition. Our results claim that when the intramodal competition reduces, airlines apply higher fares as they exploit the greater market power arising from more concentrated market structure. Further, we find evidence that airlines doundertake IPD strategies - the intertemporal profile of fares follows a J-curve - but that they do so in more competitive markets.

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