Competition Between Low-Cost Carriers and Traditional Airlines: An Empirical Entry Model

Abstract

This study uses an empirical entry model to investigate the degree of competition between low-cost carriers and traditional airlines. The model accounts for a number o market characteristics and a flexible profit specification to analyze the joint entry decisions of low-cost and full-service carriers. The results demonstrate a strong impact of the presence of competitors in firms' profitability as well as emphasizing the importance of markets demographic and route characteristics on firms' propensity to enter a market.