Thursday, March 10, 2011
Posted by D. Daniel Sokol
Hideki Murakami, Kobe University undertales an Empirical Analysis of Inter-Firm Rivalry between Japanese Full-Service and Low-Cost Carriers.
ABSTRACT: This paper empirically analyzes dynamic change in inter-firm rivalry between Japanese low-cost carriers (LCC) and full-service carriers, and deduces the dynamic change in consumer surplus after an LCC enters a market. Our findings are that: (i) the conduct parameters of LCC and reacting full-service carriers were extraordinarily low when competition started; (ii) the conduct parameters were restored to, or even exceeded, the pre-entry level in the third year of LCC entry; and (iii) gains in total welfare were recognized for five of the nine markets, whereas in three markets only the airline industry benefited, and in one market, total welfare decreased.