Thursday, June 02, 2005

The Market Rulz...

... or so I'm going to set out to prove in the case of Airports in New Zealand for my thesis.

Last night I went to a ISCR lecture by Auckland University economics Professor Tim Hazledine on competition on the Trans-Tasman Air Routes. Professor Hazledine used the trans-Tasman air market to prove that there is greater price discrimination for the consumer on a route which is serviced by multiple carriers as opposed to a route which a carrier has a monopoly. This doesn't necessarily mean that it is better for the consumer (although I imagine it probably is), but there is greater variation of the price of flights on routes with multiple carriers.

One point he made had specific reference to the topic of my thesis. He spoke briefly about frequency/share curves. This is where a carrier has, for example, 20% of the frequency of certain route, but is only able to capture 15% of the market, while conversely, the carrier which has 80% of the frequency captures 85% of the market. Hazledine concluded that it costs secondary carriers about 20% more to service a route than the dominant carrier.

This is not isolated to airlines. Richard de Neufville found that the same was the case with airports within the same system or region competing for market share. An airport with 80% of the flights would capture 85% of the market, and vice versa.

I plan to show that this is differentiation is more prevalent in an environment of privatized and deregulated airports, than it is in a situation where airports are municipally owned.
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