Volodymyr Bilotkach

Scheduled Service Versus Personal Transportation: The Role of Distance

This paper presents a theoretical and empirical analysis of the relationship be-tween frequency of scheduled transportation services and their substitutability with personal transportation (using distance as a proxy). We study the interaction between a monopoly .rm providing a high-speed scheduled service and private transportation (i.e., car). Interestingly, the carrier chooses to increase the frequency of service on longer routes when competing with personal transportation because by providing higher frequency (at extra cost) it can also charge higher fares which can boost its pro.ts. However, in line with the results of earlier studies, frequency decreases for longer flights when driving is not a viable option. An empirical application of our analysis to the European airline industry con.rms the predictions of our theoretical model.

Understanding Price Dispersion in the Airline Industry: Capacity Constraints and Consumer Heterogeneity

This paper analyzes across-airline differences in economy class fares, aimed at consumers of different types. We use the sample of fares, offered on the London-New York market. Different booking scenarios have been employed to obtain offered fares to resemble those aimed at customers of different types. We determine that fares aimed at the business customers are different across airlines, while leisure fares are not. Such conduct appears to be consistent with airlines applying yield management technique to manage uncertain demand under short-term fixed capacity. Yet, empirical support of this contention in our sample is weak. We hope that this finding will eventually help us understand the role of uncertain demand and constrained capacity in price dispersion in the airline and similar industries.

Are airports engines of economic development? A dynamic panel data approach:

This paper applies the dynamic panel data generalized method of moments estimator to the data on commercial passenger air traffic at all primary airports in the United States to evaluate the impact of traffic volume and number of destinations served with non-stop flights on the key indicators of regional economic development. We find that number of destinations served with non-stop flights has a much clearer and more robust impact on level of employment, number of business establishments, and average wage in the region. Passenger traffic volume affects employment and average wage, but not number of establishments. At the sample median, connecting a metropolitan statistical area with an extra destination, keeping everything else constant, creates 98 jobs and facilitates the opening of four new business establishments that employ people. The corresponding numbers for the sample mean are 223 jobs and 15 businesses. The impact of air travel on regional economic development is influenced by competition on the respective airline markets.

Complementary Versus Semi-Complementary Airline Partnerships

As low-cost airlines or carriers excluded from international markets by regulation may seek to expand internationally in an indirect way through code-sharing agreements, they can choose partner airlines from among domestic or international carriers. The former case results in a semi-complementary partnership, while in the latter a classic complementary alliance is formed. This paper compares welfare properties of the two types of partnerships under economies of traffic density. Semi-complementary partnerships yield higher total welfare (but not necessarily lower prices) when economies of traffic density are strong, demand is more price-sensitive, or where a carrier feeding domestic traffic to international routes is a lower-cost one.

A Tax Evasion - Bribery Game: Experimental Evidence from Ukraine

This paper examines the issue of tax evasion by enterprises through underreporting activity. We develop a view of this phenomenon as an equilibrium of the game between a businessman and an imperfectly monitored supervising official, in which a businessman can hide part of his profit and offer bribe to official. We determine conditions under which such tax evasion and bribery become wide-spread in the society, resulting in shadow economy. The game is put into an experimental setting in Kiev, Ukraine, with the emphasis of spreading of the tax evasion and bribery activity in the laboratory setting. We find that once it becomes known that substantial share of subjects playing the role of supervising officials agree to accept bribes from subjects playing the role of businessmen, the latter offer bribes more aggressively. Yet, this in turn does not affect the behavior of subjects playing the role of supervising officials.

Airline Alliances, Antitrust Immunity and Market Foreclosure

This paper examines the issue of market foreclosure by airline partnerships with antitrust immunity. Overlapping the data on frequency of service and passenger volumes on nonstop routes on the transatlantic airline market with the information on dynamics of airline partnerships, we find evidence consistent with the airlines operating under antitrust immunity refusing to accept connecting passengers from the carriers outside of the partnership at respective hub airports. When an airline partnership is granted antitrust immunity, airlines outside this partnership end up reducing their traffic to the partner airlines’ hub airports by 2.6-8.5 percent (depending on the specification and estimation technique involved). Our results suggest ambiguous welfare effects of antitrust immunity on some markets, where previous studies indicated airline consolidation should benefit consumers.

A Guide to Booking Airline Tickets Online

In this study, we document and analyze price-offer curves (the dynamics of offered prices as the departure date approaches) for 105 specific round trip itineraries on 50 busy US routes. The data were collected from the three leading on-line travel agents’ web-sites. We exploit across-route variation in the level of competition and presence of low-cost carriers (LCC), in particular Southwest Airlines (a carrier that does not sell its tickets through on-line travel agents). Both fares and yields are consistently higher along the entire price-offer curve on less competitive markets, and on routes without LCC presence. Price changes are smoother on competitive routes than on markets with one or two competitors. Price drops are observed across a spectrum of the markets, and at any day prior to departure. In particular, at least one price drop was observed within ten days before the flight for about half of all the round trips we tracked. In about one-third of round trip itineraries, we observed price drops in the last week prior to departure. At the same time, the shape of the average price-offer curve is as expected – flat up to about three weeks before the flight, and rising rapidly afterwards. We do not document systematic differences across on-line travel agents; however, differences in price quotes are not infrequent. Simple cost-benefit analysis shows that when booking a ticket closer to the planned departure date; a traveler should comparison-shop.

Review of Regulatory Emphasis on Transportation Safety in the United States, 2002–2009: Public versus Private Modes

The U.S. Department of Transportation is responsible for implementing new safety improvements and regulations with the goal of ensuring limited funds are distributed to where they can have the greatest impact on safety. In this work, we conduct a study of new regulations and other reactions (such as recalls) to fatal accidents in several different modes of transportation implemented from 2002 to 2009. We find that in the safest modes of commercial aviation and bus transport, the amount of spending on new regulations is high in relation to the number of fatalities compared to the regulatory attention received by less safe modes of general aviation and private automobiles. Additionally, we study two major fatal accident investigations from commercial aviation and two major automotive recalls associated with fatal accidents. We find differences in the cost per expected fatality prevented for these reactions, with the airline accident investigations being more cost effective. Overall, we observe trends in both the automotive and aviation sectors that suggest that public transportation receives more regulatory attention than private transport. We also observe that the types of safety remedies utilized, regulation versus investigation, have varying levels of effectiveness in different transport modes. We suggest that these differences are indicative of increased public demand for safety in modes where a third party may be held responsible, even for those not participating in the transportation. These findings have important implications for the transportation industry, policymakers, and for estimating the public demand for safety in new transport modes.

Quality coordination and complementary products

This article models the choice of price and quality, where products are complementary; and components can be provided by either one or two monopolists. The firms have to choose price and quality simultaneously, but can coordinate in the latter dimension. We consider two specifications for the quality of the composite good: ‘bottleneck’ and additive set-ups. In both cases, a single monopolist may produce lower quality as compared to dual ownership, if the latter is modelled as a single-stage quality-and-price setting game. When separate markets for components of the composite good are added to the model, we provide an example where dual ownership leading to higher quality also yields higher consumer surplus (but not total welfare) than a single monopolist.

A Framework for Modeling 'Real-Life' Airline Networks

This paper develops a new model, which allows for the co-existence of hub-and-spoke and point-to-point networks in the airline industry. Passengers are segmented between the non-stop and one-stop services. In the baseline model, the monopoly airlines ability to segment the market and effectively set up the mixed network depends on the cost savings due to the through-hub service relative to exogenous quality difference between the one-stop and non-stop flights. Socially inefficient entry with the new non-stop service where an incumbent is operating the hub-and-spoke network is possible.