Abstract This study measures the degree of market power of China's railway operator and analyzes its determining factors. A newly-developed stochastic frontier method is used to estimate the Lerner indexes of the operator's 18 regional railway bureaus from 1995 to 2014. Regressions are then conducted on these indexes to identify the determining factors of market power in this industry and explain any regional heterogeneity. We find that China's railway operator exercises significant market power with an overall positive Lerner index. Furthermore, obvious regional heterogeneity in market power exists among the railway bureaus. Railway bureaus in Eastern China typically have the highest Lerner index scores, owing probably to greater regional rail demand and/or the economies of traffic density in rail operation. We find that China's dramatic high-speed rail development in recent years appears to have no effect on the overall market power of the rail operator. On the other hand, railway market deregulation, especially a series of price liberalizations in recent years, may provide railway bureaus with more autonomy to exert their market power, widening observed heterogeneity. [ABSTRACT FROM AUTHOR]
Transportation Research Part A: Policy & Practice. Dec2018, Vol. 118, p648-661. 14p.
AIRPORTS, AIRLINE rates, AIR travelers, TRAFFIC congestion, TRAFFIC flow, and TRAFFIC engineering
Abstract In this paper, we propose an alternative empirical strategy to test whether airlines internalize airport congestion corresponding to their share of traffic at the airport. In particular, we construct a hypothesis from theoretical derivation that if airlines do internalize airport congestion the airfare prices would be positively correlated with the interactive term of the airline's passenger number at the origin airport and the congestion delay level of this airport. We test this hypothesis with the Airline Origin and Destination Survey (DB1B) database and the Airline On-Time Performance database published by the US Bureau of Transportation Statistics (BTS). We find that the hypothesis is supported by the data, suggesting that airlines' behaviour is in line with the internalization theory. We further implement subsample analysis and find that airline type also plays a role in this matter. In particular, while full service carriers internalize airport congestion, low cost carriers do not. [ABSTRACT FROM AUTHOR]
Transportation Research Part A: Policy & Practice. Aug2018:Part A, Vol. 114, p222-236. 15p.
TRAFFIC congestion, COST recovery method, ECONOMIC competition, ELASTICITY (Economics), BUSINESS revenue, and AIRPORT fees
This paper explores the implications of an imperfectly competitive non-aeronautical market for cost recovery at a congestible airport. We show that aeronautical revenue under welfare maximization is short of its costs, because the optimal airport charge must be set lower than the first-best level, to counteract market power in the non-aeronautical market, which results in insufficient revenue. However, imperfectly competitive non-aeronautical service (“side business”) leads to a positive profit that the airport may share, thereby improving the chance to recover costs. We demonstrate that airport overall cost recovery, including the profit from side business, may be satisfied, depending on the profit from side business and the demand elasticity of side business. Our analysis further identifies the role of “another good,” which can be a substitute or a complement for non-aeronautical service, in cost recovery. We analyze both cases of exogenous and endogenous prices of another good. When the price of another good is exogenous, the price higher (lower) than the marginal cost in the another-good market makes cost recovery less (more) likely. When the price of another good is endogenous, cost recovery is more likely (unlikely) to hold when non-aeronautical service and another good are closer complements (substitutes) or/and the airport absorbs more (less) profits from side business. The possibility that a monopoly airport fails to satisfy cost recovery is also examined. [ABSTRACT FROM AUTHOR]
Transportation Research Part A: Policy & Practice. Sep2017, Vol. 103, p509-524. 16p.
AIRPORTS, AIRPORT fees, COMMERCIAL aeronautics, DOMESTIC markets, and GOVERNMENT policy
This research analyses the effects of airport dominance on airline pricing power with the empirical study based on the Chinese domestic market using fixed-effect panel data models. Results from the regression analysis indicate that airport dominance is the most important source of pricing power in the gradually deregulated Chinese domestic market. Hub carriers are able to charge higher prices to premium class passengers and non-hub carriers benefit from the “umbrella effects” of hub premiums. However, hub carriers are not able to translate their airport dominance to pricing power in the economy class market, whereas non-hub carriers even have to reduce the prices as their market shares at major airports increase. This study contributes to the literature by explicitly segmenting the market into economy and premium classes. The results have important policy implications in terms of further deregulation of Chinese domestic market. [ABSTRACT FROM AUTHOR]
Many firms offer “core” and “side” goods in the sense that side-good consumption is conditional on core-good consumption. Airports are a common example where the supply of runway and terminal capacity is the core good and the supply of various concession services (for example, car rental services) is the side good. While side-good supply can be responsible for a major share in total revenue, monopoly regulation typically concentrates on the control of core-good prices (“core prices” in short). Whether market power can indeed be effectively controlled by the regulation of core prices alone then depends on whether core-good consumption is a function of the price for side goods. This study empirically shows that a one-dollar increase in the daily car rental price reduces passenger demand at 199 US airports by more than 0.36%. A major implication of our findings is that for the case of airports, the effective control of market power may require regulation of both prices for core and side goods. [ABSTRACT FROM AUTHOR]
Highlights: [•] A certain degree of market power is found to exist in the Chinese airline industry. [•] China’s three dominant carriers exhibit different levels of market power. [•] The extent of market power varies significantly among regional markets. [•] The determinants of Chinese airlines’ market power are investigated. [ABSTRACT FROM AUTHOR]
Transportation Research Part A: Policy & Practice. Jan2014, Vol. 59, p288-305. 18p.
AIRLINE industry, MARKET power, PANEL analysis, AIRPORTS, AIRLINE rates, PUBLIC welfare, and CONSUMER behavior
Highlights: [•] We analyze determinants of airfares in the US airline industry. [•] Route-level competition is the strongest determinant of prices for large airports. [•] Airport concentration–price relationship is driven by small airports. [•] Consumer welfare losses from recent mergers are concentrated in few communities. [ABSTRACT FROM AUTHOR]