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One price for all? Price discrimination and market captivity: Evidence from the Italian city-pair markets

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  • Bergantino, Angela Stefania
  • Capozza, Claudia

Abstract

This paper tests whether, and to what extent, airlines exploit market captivity by using price discrimination strategies. The Italian passenger market is particularly fit for this purpose, given the high differentials in the degree of the inter-modal competition amongst domestic connections. Results show that, ceteris paribus, airlines adopt a different pricing behaviour depending on the degree of inter-modal market captivity. First, in highly concentrated markets with respect to air competitors, airlines price higher when the inter-modal competition is limited. This proves that inter-modal market captivity strengthens the effect of market power. Second, the inter-temporal price discrimination leads to a J-shaped distribution of fares over time, which is more pronounced when the inter-modal competition is effective. This suggests that airlines need to adopt a pricing technique that allows for a greater market segmentation in order to compete successfully with high-speed rail transport and to extract a larger part of passengers’ surplus. These results are relevant in terms of transport-investment implications and competition policy. The indirect benefits that investments in rail infrastructure would yield through downward pressures on competing airline fares should be embedded in any cost-benefit analysis of high-speed networks investments and in any policy evaluation of measures that aim to reduce the territorial gaps in infrastructure endowment and accessibility.

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  • Bergantino, Angela Stefania & Capozza, Claudia, 2015. "One price for all? Price discrimination and market captivity: Evidence from the Italian city-pair markets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 75(C), pages 231-244.
    • Handle: RePEc:eee:transa:v:75:y:2015:i:c:p:231-244
    DOI: 10.1016/j.tra.2015.03.005
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    5. Angela S. Bergantino & Claudia Capozza & Mauro Capurso, 2018. "Pricing strategies: who leads and who follows in the air and rail passenger markets in Italy," Applied Economics, Taylor & Francis Journals, vol. 50(46), pages 4937-4953, October.
    6. Min Su & Weixin Luan & Zeyang Li & Shulin Wan & Zhenchao Zhang, 2019. "Evolution and Determinants of an Air Transport Network: A Case Study of the Chinese Main Air Transport Network," Sustainability, MDPI, vol. 11(14), pages 1-20, July.
    7. Florent Laroche & Ayana Lamatkhanova, 2020. "Effects of open access competition on prices and frequencies on the interurban railway market: evidence from Europe," Working Papers halshs-02930864, HAL.
    8. Cattaneo, Mattia & Malighetti, Paolo & Morlotti, Chiara & Redondi, Renato, 2016. "Quantity price discrimination in the air transport industry: The easyJet case," Journal of Air Transport Management, Elsevier, vol. 54(C), pages 1-8.
    9. Florent Laroche & Ayana Lamatkhanova, 2022. "Effects of open access competition on prices and frequencies on the interurban railway market: evidence from Europe," Post-Print halshs-02930864, HAL.
    10. Morlotti, Chiara & Cattaneo, Mattia & Malighetti, Paolo & Redondi, Renato, 2017. "Multi-dimensional price elasticity for leisure and business destinations in the low-cost air transport market: Evidence from easyJet," Tourism Management, Elsevier, vol. 61(C), pages 23-34.
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    13. Su, Min & Luan, Weixin & Fu, Xiaowen & Yang, Zaili & Zhang, Rui, 2020. "The competition effects of low-cost carriers and high-speed rail on the Chinese aviation market," Transport Policy, Elsevier, vol. 95(C), pages 37-46.
    14. Gremm, Cornelia, 2018. "The effect of intermodal competition on the pricing behaviour of a railway company: Evidence from the German case," Research in Transportation Economics, Elsevier, vol. 72(C), pages 49-64.
    15. Beria, Paolo & Bertolin, Alberto, 2019. "Evolving long-distance passenger services. Market concentration, fares and specialisation patterns in Italy," Research in Transportation Economics, Elsevier, vol. 74(C), pages 77-92.
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    17. Capozza, Claudia, 2016. "The effect of rail travel time on airline fares: First evidence from the Italian passenger market," Economics of Transportation, Elsevier, vol. 6(C), pages 18-24.

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