MODELLING AND TESTING THE EFFECT OF MARKET STRUCTURE ON PRICE: THE CASE OF INTERNATIONAL AIR TRANSPORT. IN: AIR TRANSPORT

Six important issues arise when attempting to infer statistically the effect of market structure variables on price: (1) using neoclassical theory to specify the assumptions underlying the price model; (2) incorporating the structure variables into the empirical model properly; (3) specifying the effect of intervening variables on prices; (4) obtaining relevant and accurate data; (5) choosing the appropriate econometric estimation technique; and (6) constructing proper hypotheses techniques. This study attempts to be the first to address all six issues satisfactorily. A methodology is developed for determining the effects of market structure or conduct on prices, and this methodology is applied to the international air transport industry to measure the effect on prices of a change in government policy. Specifically, the methodology is applied to a collection of international airline routes for the years 1976-1981. During this time, the United States launched a liberal bilateral air transport treaty process that facilitated competitive pricing on international air routes. Data have been collected to include routes influenced by the liberal policy, and geographically separate routes that continued to have traditional price and capacity regulated bilateral air treaties. A panel data set tracking prices over time on this set of routes was developed, and estimation methods were chosen to account for simultaneous variable determination as well as potential bias. Results indicated that the policy had a significant effect on prices on international air routes, reducing discount airfares by an average of 35%. This may have resulted in a welfare gain to North Atlantic passengers of approximately $325 million in 1981. The policy had no statistically discernible effect on full fares.

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  • Supplemental Notes:
    • This paper originally published in Journal of Transport Economics and Policy, 26(2), May 1992, pp 171-184.
  • Corporate Authors:

    Edward Elgar Publishers

    William Pratt House, 9 Dewey Court
    Northampton, MA  United States  01060-3815
  • Authors:
    • Dresner, M
    • Tretheway, M W
  • Publication Date: 2002

Language

  • English

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Filing Info

  • Accession Number: 00961826
  • Record Type: Publication
  • ISBN: 1840645490
  • Files: TRIS
  • Created Date: Aug 16 2003 12:00AM