Marco Alderighi

Assessment of New Hub‐and‐Spoke and Point‐to‐Point Airline Network Configurations

Abstract This paper aims to provide new measures of airline network configuration with a view to analyse effectively the complexity of modern carriers’ network design. It studies network configurations in the airline sector by taking into account both spatial and temporal dimensions. The spatial dimension is measured by using both the Gini index and the Freeman index, which originate from social science research. The temporal dimension is measured by the connectivity ratio, i.e. the share of indirect connections over the total number of connections. According to these indicators, the configuration of the largest full‐service carriers and the largest low‐cost carriers in Europe is investigated. The results show that the temporal dimension provides a clear distinction between full‐service carriers and low‐cost carriers; while the spatial dimension appears useful when identifying the peculiarities within groups.

European airlines conduct after September 11

The paper analyses the reorganisation that European carriers have implemented after September 11 in the transatlantic flights. We model carriers’ conduct as a mixture of short- and long-term goals, where the weights depend on firm-specific variables (adjustment costs, financial situation) and subjective expectations on the crisis duration. Data provide some support to our conjectures that high adjustment costs induce low flexibility and a focus on the long-term; and that a bad financial situation shifts the carries attention to short-term. Finally, the analysis of the composition of short- and long-term reaction provides some insights into the carriers’ perspectives of the crisis duration.

Combined Effects of Capacity and Time on Fares: Insights from the Yield Management of a Low-Cost Airline

Based on two strands of theoretical research, this paper provides new evidence on how fares are jointly affected by in-flight seat availability and purchasing date. As capacity-based theories predict, it emerges that fares monotonically and substantially increase with flight occupancy. After controlling for capacity utilization, our analysis also supports time-based theories, indicating a U-shaped temporal profile over a two-month booking period, as well as a sharp increase in fares in the two weeks prior to departure.

Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline

Based on two strands of theoretical research, this paper provides new evidence on how fares are jointly affected by in-flight seat availability and purchasing date. As capacity-driven theories predict, it emerges that fares monotonically and substantially increase with the flights occupancy rate. Moreover, as suggested in the literature on intertemporal price discrimination, the adoption of advance purchase discounts is widespread as the departure date nears, but it may be part of a U-shaped temporal profile, where discounts are preceded by periods of relatively higher fares. Finally, the intervention of yield management analysts appears to play a substantial role.

The Circular City with Heterogeneous Firms

The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.

Nonlinear Pricing in Asymmetric Duopoly

We characterise, for both separate and interdependent markets, the local pure-strategies Nash equilibrium of a spatial duopoly game, where consumers are horizontally and vertically heterogeneous, and firms have different cost structures and ranges of product lines. We show that standard results which emerged in the monopoly context can not be generalised to strategic contexts where firms retain market power and there is sufficient competitive pressure. We prove that in the asymmetric duopoly case, when markets are interdependent, the incentive compatibility constraints are slack, and there is no quality distortion.

Second-Degree Price Discrimination and Inter-Group Effects in Airline Routes between European Cities

This paper presents a model of second-degree price discrimination and inter-group effects to describe the full-service pricing behavior in the passenger aviation market. Consumer heterogeneity is assumed on both a horizontal and a vertical dimension, while various distinct market structures, some of which include low-cost carriers (LCCs), are considered. In the theoretical model framework, we derive that the rivalry between full-service carriers (FSCs) reduces fare differences between the business and leisure segments. Furthermore, the presence of LCCs increases fare gaps between leisure and business travelers, and it also induces FSCs to decrease fares in the leisure segment and eventually to increase them in the business one. This last outcome emerges from a change in passenger arrangements caused by inter-group effects. In our empirical analysis, we use data on published airfares of Lufthansa, British Airways, KLM and Alitalia for the main city-pairs from Italy to Germany, the UK and the Netherlands. Our results show that the empirical results provide support for our theoretical propositions.

Selection, Heterogeneity and Entry in Professional Markets

We analyze two different cases of entry regulation in professional markets: first, when licensing is a requirement for becoming a professional (lawyers); second, when entry and price restrictions are applied on a geographical basis (pharmacists). Both cases are investigated within a circular model of localized competition and heterogeneous players. The analysis reveals that licensing introduces a selection mechanism which is effective in preventing entry of inefficient players in markets with large ex ante heterogeneity. Furthermore, because in the second case excessive entry is reduced as the degree of heterogeneity increases, our analysis lends support to a policy that simultaneously relaxes entry and price restrictions.

Third decimal place odd prices trigger competition: evidence from the Italian retail gasoline market

ABSTRACT Recent literature shows that in the US gasoline prices are higher in locations using more odd prices (particularly those ending in five and nine digits), since they coarse the pricing grid and act as a focal collusive point. We replicate this analysis for the Italian market, obtaining the opposite result. Since the rightmost digit of the retail gasoline prices in Italy is the third and not the second decimal place, coarsening the pricing grid is not sufficient to support a collusive behaviour.

Air Accessibility and Export Capability of the Italian Manufacturing Industry

This paper provides empirical evidence on the role played by air services as improvementin export capability of the Italian manufacturers in Europe. We find that the existence of adirect connection improves the exports of Italian firms, especially when flights are operated by traditional carriers. From the baseline econometric model, it emerges that the export elasticity to direct flights is about 4 per cent. The impact of air accessibility on exports is more pronounced on firms located in Southern Central Italy than on firms located in the Northern part of Italy.