Competitive vs. monopolistic routes: Are fares so different?

Abstract

Many different carriers operating on the same route is usually regarded as a signal of a competitive setting and, therefore, as a situation potentially beneficial for customers in terms of lower prices. This is obviously true if the argument involves a comparison between different market forms given the level of demand. Across different routes, however, the number of carriers depends also on the level of demand for each particular pair of destinations, so that we cannot assume a priori that fares per kilometre on “monopolistic” routes are higher than on more “competitive” ones. We study the price policy during 2008 of the two main European low cost carriers, Ryanair and easyJet, with reference to one hundred of the least, and one hundred of the most, dense routes among those operated by the two carriers respectively. The systematic occurrence of higher (for Ryanair), or at least no lower (for easyJet), average prices on competitive routes if compared with prices on routes with a single carrier by the same airline, surprising as it may be, supports the conclusion that a low level of demand is sufficient to impose low fares to some extent irrespective of the degree of competition.