Cross Subsidies in the Chilean Civil Aviation Services and Airport Network (Subsidios Cruzados En Los Servicios Aeronauticos Y En La Red Aeroportuaria De Chile)

22 Pages Posted: 16 Jul 2008 Last revised: 24 Jul 2008

See all articles by Andres Gomez-Lobo

Andres Gomez-Lobo

University of Chile - Department of Economics

Aldo Gonzalez

University of Chile - Department of Economics

Abstract

Over the last 20 years, demand for air passenger transport has grown dramatically. At the same time, the two largest domestic airlines merged and several smaller entrants exited without being able to make significant inroads. As a result, the industry is highly concentrated, with a dominant firm and a few fringe firms. This condition has generated considerable public debate about the degree of competition in the airline industry in Chile. With the purpose of contributing to the public discussion, this paper analyzes the industry from an industrial organization point of view. Specifically, the paper describes the domestic airline industry in Chile, defines the relevant market and then analyzes both the degree of concentration and entry conditions. In particular, I focus on the roles played by vertical integration, the computer reservation systems and the revenue management practice. I then evaluate self-regulation of airfares by the dominant firm and propose several public policies to increase competition.

Note: Downloadable document is in Spanish.

Keywords: Airlines, Competition, Fares Self-regulation

JEL Classification: L93, L11, L13

Suggested Citation

Gomez Lobo, Andres and Gonzalez, Aldo, Cross Subsidies in the Chilean Civil Aviation Services and Airport Network (Subsidios Cruzados En Los Servicios Aeronauticos Y En La Red Aeroportuaria De Chile). Revista de Analisis Economico, Vol. 23, No. 1, 2008, Available at SSRN: https://ssrn.com/abstract=1160300

Andres Gomez Lobo (Contact Author)

University of Chile - Department of Economics ( email )

Diagonal Paraguay 257
Torre 26, Of. 1801
Santiago
Chile

Aldo Gonzalez

University of Chile - Department of Economics ( email )

Diagonal Paraguay 257
Torre 26, Of. 1801
Santiago
Chile

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