Airline Pricing Behaviour Under Limited Intermodal Competition

Abstract

This paper explores airline pricing behaviour dealing with two issues. The OIˆrst is to measure the extent to which intramodal competition inaI uences fares charged to travellers. The second is to shed light on faresiI intertemporal proOIˆle to verify if airlines undertake intertemporal price discrimination (IPD) strate- gies and whether IPD is of monopolistic-type or competitive-type. Di§erently from past contributions, we study airline pricing behaviour removing the inaI u- ence of intermodal competition. To this scope, we focus on the southern Italian market since it is less accessible by other modes and thus, air transport-related competition prevails. Our results claim that when the intramodal competition reduces, airlines apply higher fares as they exploit the greater market power arising from more concentrated market structure. Further, we OIˆnd evidence that airlines do undertake IPD strategies - the intertemporal proOIˆle of fares follows a J-curve - but that they do so in more competitive markets.