Rivalry Between Low Cost Carriers and Major Carriers: The Case in Korean Aviation Industry

As the waves of liberalization and deregulation have accelerated to relieve rigid controls over airline routes, capacity, and fare setting regimes, Low Cost Carriers (LCCs) have emerged especially in local aviation markets since the 1970s. This paper studies the effects of LCC's entry into the domestic aviation market which was pre-occupied by 2 major carriers, Korean Air (KAL) and Asiana Airlines. Through a simple model describing 2 situations, prior and post to LCC's entry, changes and trends of each airline's output and profit were analyzed based on the Cournot and 2-stage Stackelberg game equilibrium. In summary, the conclusion consists of 5 points: 1) even though JIN Air's entry reduced KAL's respective output and profit, the more JIN Air produces, the higher the joint-profit of KAL and JIN Air is; 2) from the joint-profit aspect, increasing KAL's output to a level higher than JIN Air's is more profitable on the Gimpo-Jeju route, conversely, increasing JIN Air's output higher than KAL's is more profitable on the Jeju-Busan route; 3) even though JIN Air's entry increases Asiana Airline's output, the more JIN Air produces, the less Asiana Airlines's profit is; 4) total output in markets as well as total profits of firms will increase under certain conditions; 5) KAL and JIN Air tend to get caught in an unresolved conflict on level of LCC cost.

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  • Authors:
    • Lee, Jin-Kook
    • Kim, Tae Seung
  • Publication Date: 2009-12

Language

  • English

Media Info

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Filing Info

  • Accession Number: 01152118
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Mar 5 2010 2:59PM