A model of air cargo liberalization: Passenger vs. all-cargo carriers

A model of air cargo liberalization: Passenger vs. all-cargo carriers

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Article ID: iaor20031055
Country: United Kingdom
Volume: 38E
Issue: 3/4
Start Page Number: 175
End Page Number: 191
Publication Date: May 2002
Journal: Transportation Research. Part E, Logistics and Transportation Review
Authors: ,
Keywords: economics
Abstract:

This paper employs a multi-market oligopoly model to examine the effect of cargo liberalization on competition between all-cargo carriers and mixed passenger/cargo carriers. We find that if home carriers engage in the joint production of cargo and passenger services, whereas foreign carriers produce the two outputs separately, then unilateral cargo liberalization by the home country will reduce home firm profits and increase foreign profits, and raise air fares for passenger travel when foreign competition in the passenger sector is limited. Our analysis suggests that the separation of air cargo and passenger rights might be fraught with difficulty in Asia due to the characteristics of its air cargo market, in which most passenger carriers have substantial cargo businesses and operate ‘combi’ fleets.

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