nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒07‒05
one paper chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A Cournot model for analysing the effects of an open skies agreement By Vera Alves; Rosa Forte

  1. By: Vera Alves (Universidade do Porto); Rosa Forte (Faculdade de Economia, Universidade do Porto, and cef.up)
    Abstract: In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we developed a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement. Based on the model developed it can be concluded that the prices on international market segments where competition increases should decline after market liberalisation, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes after the agreement, leading to decreased profits.
    Keywords: Open Skies agreement; Cournot model; Effects on prices; Firms’ profits.
    JEL: D43 D21
    Date: 2013–06

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