Market Competitions of Domestic Air Carriers under Price Regulation

• Main Authors: Hsu, Hong-Yi, 許弘毅
• Other Authors: Chiou, Yu-Chiun
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/13887487878625941451

碩士 === 國立交通大學 === 交通運輸研究所 === 100 === Unlike most of the previous models attempting to model the competition behaviors at the route-level (i.e. considering only one specific route) by assuming that aircraft investment and operation costs of airlines can be clearly classified among their operating routes. However, in practice, most airlines operate more than one route and allocate their flight crew and aircraft fleets among their operating routes and may adopt different competition strategies for different routes according to their own operating environments so as to maximize the profit of the whole company. Due to scale economy and resource scarcity, to individually and separately maximize the profits of all operating routes may not necessarily lead to the profit maximization of a whole company. The airlines operating greater number of routes might have a higher chance to more effectively utilize their aircraft fleet than those having fewer routes. In such circumstances, unfair competition might occur among the airlines operating different number of air routes. To separately model airline competition behaviours on a specific route might result into a misleading result. Therefore, the airline competition behaviours should be modeled at the company-level by considering all operating routes simultaneously. Additionally, Taiwan is one of the few countries in the world which still has effective price regulation on domestic air market. To retain the room for pricing flexibility of airlines, airfare is allowed to be flexibly changed within the upper and lower airfares regulated by the government. That is, to squeeze the room may lessen airline competition to some degrees. Without knowing the airline competition behaviors under such a regulated market, it is impossible to propose an effective price regulation policy. Based on these, this study aims to model airlines competition behaviors on airfare and service frequency under a regulated airfares domestic air transport market. Obviously, this is a three-level game. The upper level is how the government makes the price regulation. The second level is how airlines to decide their airfares and service frequencies among their operating routes so as to maximize their own profit under competitive (Nash and Stackelberg) and collusive environments. The final level is how passengers choose transport modes and airlines so as to maximize their own utility. To investigate the applicability of the proposed model, two exemplified examples of the competition of two airlines on a single route and the competition of four airlines on four routes and one case study on the competition of two airlines on four air routes are conducted. The results show that in addition to the airlines in the market, surface transport modes which have high competitive power also affect the decisions of airlines. Additionally, airlines’ competitive power is closely related to its economic scale and the number of its monopolistic routes. Collusion (collusively pricing) among airlines can help airlines pursue for higher profits. At last, we also confirm that price regulation plays an important role in airline competitions, especially in monopolistic routes. Thus, a proper price regulation can protect customers from abused monopoly power and prevent cut-throat competition among airlines.