Airline Route Structure Competition and Network Policy

Tinbergen Institute Discussion Paper 13-189/VIII

30 Pages Posted: 27 Nov 2013

See all articles by Hugo E Silva

Hugo E Silva

VU University Amsterdam

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Vincent A.C. van den Berg

VU University Amsterdam; Tinbergen Institute

Date Written: November 19, 2013

Abstract

This paper studies whether a regulator needs to correct the route structure choice by carriers with market power in the presence of congestion externalities, in addition to correct their pricing. We account for passenger benefits from increased frequency, passenger connecting costs, airline endogenous hub location and route structure strategic competition. We find that, for some parameters, an instrument directly aimed at regulating route structure choice may be needed to maximize welfare, in addition to per-passenger and per-flight tolls designed to correct output inefficiencies. This holds true when the regulator is constrained to set non-negative tolls, but also for the case of unconstrained tolling.

Keywords: Route structure competition, Aviation policy, Hub-and-spoke networks, Fully-connected networks

JEL Classification: H2, L13, L93, R4

Suggested Citation

Silva, Hugo E and Verhoef, Erik T. and van den Berg, Vincent A.C., Airline Route Structure Competition and Network Policy (November 19, 2013). Tinbergen Institute Discussion Paper 13-189/VIII, Available at SSRN: https://ssrn.com/abstract=2360003 or http://dx.doi.org/10.2139/ssrn.2360003

Hugo E Silva (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Vincent A.C. van den Berg

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

HOME PAGE: http://www.feweb.vu.nl/nl/afdelingen-en-instituten/spatial-economics/staff/v-berg/index.asp

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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