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Advances in Airline Economics, Volume 1: Competition Policy by Darin Lee

By Darin Lee

This can be the 1st in a brand new sequence of books at the economics of the airline undefined. The sequence is a set of unique, state-of-the-art learn papers from a global panel of wonderful participants. quantity 1 will concentrate on issues relating to pageant coverage and antitrust, corresponding to the industrial effect of airline alliances (both foreign and domestic), predation, and incumbent responses to cost-effective access. a part of a "New Series", this quantity specializes in festival coverage and antitrust. Its individuals are overseas specialists within the box.

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Additional info for Advances in Airline Economics, Volume 1: Competition Policy and Antritrust (Advances in Airline Economics)

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There have been two major streams of literature in economics dealing with predatory behavior: a theoretical stream and one focused on the problem of defining a legal rule for courts to follow in cases of alleged predation. The modern theory of predation had its first statement in the papers by Kreps and Wilson (1982) and Milgrom and Roberts (1982) that proposed reputation models of predation. Their papers were followed by others that developed both deep pocket and signaling models of predation.

The Federal Cartel Office noted that whether Lufthansa earned profits or losses on the route is an open question. ”23 It is unclear which specific justifications the Federal Cartel Office considered. ”24 Hence, it was argued that the alleged predation would create a reputation for predation that would prevent other new entry. No evidence that such a reputation was created was given in the decision. Based on these findings, the Federal Cartel Office ruled that Lufthansa must, for a period of 2 years, maintain a one-way fare that exceeds Germania’s by at least 35 Euros, as long as Germania’s fare is no more than 99 Euros.

6 Incumbent airline pricing and capacity responses to new rivals have given rise to numerous complaints of predatory pricing and capacity expansion. The challenge for economists and lawyers has been to design tests for predatory conduct that can distinguish predatory behavior from aggressive competitive conduct in the airline industry. This task is made difficult by problems associated with deciding the appropriate price or revenue measure on the one hand, and measure of cost on the other hand, to be used for purposes of a below-cost pricing test.

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