Abstract
Low-cost airlines in Mexico affect the lowest-quoted fares of one of the two principal incumbent carriers, but have no effect on the lowest-quoted fares of the other incumbent carrier. The same conclusion holds for competition between incumbent carriers where the lowest-quoted fares of one of the incumbent carriers is lower when incumbents compete. Congestion at the Mexico City airport is limiting potential competition, with carriers being able to charge a significant price premium. This suggests that the societal costs of airport congestion can go well beyond the negative congestion externality and should also include the effects of reduced competition. These findings raise important public policy issues.
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This work evolved from the OECD-Mexico Competition Assessment Toolkit project between the OECD and the Mexican Competition Commission while the author was a Senior Economist, Competition Division of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries, nor the Mexican Competition Commission.
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Ros, A.J. The Determinants of Pricing in the Mexican Domestic Airline Sector: The Impact of Competition and Airport Congestion. Rev Ind Organ 38, 43–60 (2011). https://doi.org/10.1007/s11151-011-9276-x
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DOI: https://doi.org/10.1007/s11151-011-9276-x