Three essays on competition in airline markets with recent liberalisation
This thesis aims at investigating the behaviour of airlines in recently liberalised markets, by making use of the Brazilian air transportation as a case study. In order to accomplish this objective, the following three essays were developed: a study of low cost carrier entry behaviour, an analysis of the pricing behaviour of the major incumbents in the industry, and, finally, an assessment of airline conduct in the most important market in the country. All essays contain empirical investigation performed by making use of data supplied by Brazil’s Department of Civil Aviation, DAC. In the first essay, the entry of Gol Airlines on several Brazilian domestic routes, in 2001 and 2002, is analysed in order to draw inference on the competition between a discounter in rapid expansion and the full-service carriers. A route-choice model is estimated by making use of a flexible post-entry equilibrium profits equation and accounting for endogeneity of the main variables. The second essay aims at empirically investigating the pricing behaviour of the legacy carriers in Brazil, with special focus on reactions to the entry of Gol, in 2001. A study of localised competitive advantage regarding the determinants of pricing power is performed along with the analysis of the pattern of price reactions by the incumbents. A single econometric framework is designed and estimated with panel data controlling for city-specific effects. And finally, the third essay aims at assessing the impacts of economic liberalisation on the route Rio de Janeiro - São Paulo. By making use of both a two-stages budgeting representation of the demand system, and a competition model with product heterogeneity among rivals, and based on the framework of the New Empirical Industrial Organisation, it was possible to examine the existence of a structural change on airlines’ conduct parameters due to the regulatory reform.