Working Paper: CEPR ID: DP5004
Authors: Marc Ivaldi; Catherine Vibes
Abstract: The objective of the paper is to elaborate a simulation model to analyse inter and intra-modal competition in the transport industry, based on game theory models. In our setting, consumers choose a transport mode and an operator to travel on a given city-pair; operators strategically decide on prices for the types of service they provide. We derive the market equilibrium and simulate potential scenarios. In particular we measure the impact of entry by a low cost train operator and the effect of a kerosene tax. Hence our framework could serve as a tool to measure the effectiveness of competition on a relevant market or to design marketing strategies. More generally it can be applied in cases of oligopolistic competition when detailed data are not available.
Keywords: Product Differentiation; Relevant Transport Market; Simulation Model
JEL Codes: C35; C81; L11; L13; L92; L93; L98
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| entry of low-cost train operator (L92) | lower prices across all transport alternatives (R41) |
| entry of low-cost train operator (L92) | changes in market shares (L16) |
| introduction of kerosene tax (H29) | increase in airline prices (L93) |
| increase in airline prices (L93) | loss of market share for airlines (L93) |
| loss of market share for airlines (L93) | shift in consumer demand towards rail transport (R22) |
| presence of multiple operators (C30) | enhanced consumer welfare and lower prices (D18) |