Review of Industrial Organization 24: 37–49, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
Prices and Departures in European Domestic
Department of Economics, Göteborg University, Box 640, SE-40530 Göteborg, Sweden
Abstract. Using data on 172 domestic city-pair markets in eight European countries, we investigate
the effect of the market structure on airlines choices of departures and prices. We ﬁnd that ﬂag carriers
have a higher number of departures than other airlines and that it is more likely that ﬂag carriers are
monopolists. At the same time ﬂag carriers do not have a higher ticket price than other airlines. The
inﬂuence of market power, measured with the Herﬁndahl index, does not have a signiﬁcant effect on
ticket prices, but a signiﬁcant effect on the number of departures: decreased market concentration and
an increased number of airlines results in increased aggregate frequencies. Comparing the predicted
ticket prices, at sample mean, between monopoly and non-monopoly routes we can reject the hypo-
thesis of differences in equilibrium price. However, the predicted aggregate number of departures,
calculated at sample mean, is signiﬁcantly higher at non-monopoly routes compared with monopoly
Key words: Aviation, competition, ﬂag-carrier, market power.
JEL-classiﬁcations: L11, L93
The European airline markets have undergone many changes over the last 15 years.
There has been an extensive deregulation both of the domestic airline markets
and the intra-European airline markets – removing barriers to entry and allowing
airlines to set their prices freely – starting with the renegotiation of intra-European
bilateral agreements in the mid and late 1980’s. In 1987 the ﬁrst European Com-
munity deregulation package was introduced, followed by the second package in
1990 and a third in 1993 (Marin, 1995). The deregulation in Western Europe has
been rather slow and gradual, in particular compared with the rapid deregulation
in the US (Button et al, 1998). The experiences from the deregulations of the US
and European markets are mixed, although most studies seem to conclude that
the overall welfare effects of the deregulation have been positive.
is of course no guarantee for competition. In Europe many small routes are still
See e.g., Borenstein (1990, 1992), Marin (1995), Morrison and Winston (1986), Schipper et al.