Abstract
This article provides an original theoretical model for air transport companies in the U.S. air travel market. The theoretical model of competition among airlines is empirically tested by estimating two equations of demand and price fixing. This estimate is made for 239 routes and 23 airports.
 This research provides estimates of the elasticity of demand in terms of price and income. It also provides the elasticities of demand in relation to the frequencies and elasticities of price fixing with regard to the frequencies that would allow us to introduce the new concept of “frequency economies” for the airlines.
 Finally, the article presents results that might be useful to the airlines and public authorities, since it also analyzes the effect of the existence or absence of competitive transportation alternatives to air transport, as well as the influence of the hub airports and the population variable. Knowing the results offered here will undoubtedly prove useful to the actors involved in this industry, in terms of how distance, occupancy and the number of frequencies on each route influence costs.
Highlights
IntroductionThe unique contribution to the existing literature is made by increasing both the sample size (239 routes) and the time horizon (60 quarters), introducing for each of these routes variables such as frequencies, price per mile charged by the airlines, aircraft capacity and the distance between each origin-destination pair, as well as several dummy variables, among other factors
Knowing the results offered here will undoubtedly prove useful to the actors involved in this industry, in terms of how distance, occupancy and the number of frequencies on each route influence costs
The aim of this study is to provide an original theoretical model for air transport companies in the U.S air travel market, as well as to empirically test this theoretical model of competition among the airlines by estimating two equations of demand and price fixing
Summary
The unique contribution to the existing literature is made by increasing both the sample size (239 routes) and the time horizon (60 quarters), introducing for each of these routes variables such as frequencies, price per mile charged by the airlines, aircraft capacity and the distance between each origin-destination pair, as well as several dummy variables, among other factors. For this purpose, a theoretical oligopolistic model of competition was applied, with vertical differentiation of products that could be empirically tested by means of two equations (demand and price).
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