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Scheduled Service Versus Personal Transportation: The Role of Distance

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Document pages: 47 pages

Abstract: This paper presents a theoretical and empirical analysis of the relationship between frequency of scheduled transportation services and their substitutability with personal transportation, using distance as a proxy. We study the interaction between a monopoly fi…rm providing a high-speed scheduled service and private transportation (i.e., car). Interestingly, the carrier chooses to increase the frequency of service on longer routes when competing with personal transportation because by providing higher frequency (at extra cost) it can also charge higher fares which can boost its profi…ts. However, in line with the results of earlier studies, frequency decreases for longer flights when driving is not a viable option. An empirical application of our analysis to the European airline industry confi…rms the predictions of our theoretical model.

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