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Competency, regulation and network effects in air transport

9th National Competition for Economic Research Grants

Industrial economics and regulation

Senior Researcher : Xavier Fageda Sanjuán

Research Centre or Institution : Universidad de Barcelona.

Abstract

Research line 1: Business models of airlines and effects on the route network. Evidence is found that network airlines may have incentives to offer services on point-to-point routes which do not connect their hub airports. Depending on the distance and the proportion of business travellers, the option of either regional or low cost airlines is chosen. On the other hand, evidence is found that the merger of airlines may constitute an incentive to concentrate traffic at the main hub, unless congestion at the hub is very high.

Research line 2: Design and effects of universal service policies in Europe. Theoretical and empirical analysis is undertaken of the effects of implementing discounts for residents of islands and the public service obligation ("price caps" and "frequency floors"). Evidence is found that airlines increase prices on routes with discounts due to the greater demand and less elasticity in the prices for residents on the islands. On the other hand, regulation of prices and frequencies seem to be effective policies to guarantee air services in adequate conditions. In addition, it is noted that the implementation of public service policies tends to distort competition in a context in which, at the level of domestic routes, the levels of concentration remain very high.

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