Working Paper: CEPR ID: DP403
Authors: Victor D. Norman; Siri P. Strandenes
Abstract: The paper develops a numerical simulation model to assess the possible consequences of competition on inter-Scandinavian air routes, using the Oslo-Stockholm route as a case. In the model, demand for air transportation depends on the price and frequency, reflecting consumer preferences for travel and for time of departure. Initially, the market is taken to be an SAS monopoly, so the model is calibrated to estimates of prices and costs, data for demand, and to the first-order conditions for a monopolist. The model is then used to simulate symmetric, non-cooperative many-firm equilibria, described as a simultaneous Bertrand equilibrium in pricing and Cournot equilibrium in the number of flights offered. The simulation experiments indicate very substantial efficiency gains from competition.
Keywords: deregulation; airlines; competition; policy; european integration
JEL Codes: 610; 620
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deregulation (L51) | Increased Competition (L13) |
| Increased Competition (L13) | Price Reductions (L42) |
| Deregulation (L51) | Price Reductions (L42) |
| Price Reductions (L42) | Increased Consumer Surplus (D11) |
| Deregulation (L51) | Efficiency Gains (D61) |
| Source of New Entrants (L26) | Distribution of Welfare Gains (D39) |