Elicit: Competitive Analysis in Oligopolistic Aviation
Competitive Analysis in Oligopolistic Aviation
What elements are needed to analyze the competitive position of an airline in the oligopolistic aviation market?
Analysis of airline competitive position involves four key elements: market structure factors, pricing strategies, resource management, and strategic positioning decisions.
Abstract
Airline competitiveness in oligopolistic markets depends on several interconnected elements. Thirty‐percent of the examined studies concentrate on market structure, with authors such as Berry (1990) and Oum et al. (1993) showing that hub-and-spoke networks, route dominance, and concentration measures (e.g., the Herfindahl-Hirschman Index) capture cost efficiencies and market power. Pricing strategies also play a central role; studies by Carlsson (2002) and Dittmann (2013) demonstrate that dynamic pricing, yield management, and fare dispersion affect competitive outcomes, as reflected in 12 of the 25 studies.
Resource-based factors further influence competitive position. Research by Yaşar and Gerede (2023a) and Gundelfinger Casar and Millán (2017) reveals that fleet composition, route network optimization, and financial resource deployment underpin market share gains and operational efficiency. In addition, strategic positioning—such as service differentiation and alliance participation as detailed by Fageda (2003) and Kuljanin (2019)—completes the framework. Various studies incorporate indicators including load factors, cost efficiency, and financial performance to quantify these factors across markets in the United States, Spain, Brazil, China, and Turkey.
Results
Characteristics of Included Studies
| Study Focus | Methodology | Market Context | Key Variables Examined | Full text retrieved |
|---|---|---|---|---|
| Airline competition and product differentiation | Theoretical model | US domestic market (implied) | Airport presence, hub-and-spoke systems, market power | No |
| Price and frequency choice | Address model, econometric analysis | Eight European countries, 172 city-pair markets | Market structure, prices, flight frequency | No |
| Market structure and pricing strategies | Concentration indicators, econometric modeling | Brazilian domestic airline market | Market concentration, pricing, operational costs | Yes |
| Competitive behavior of airlines | Choice Theory, Pricing Theory | Chinese domestic airline market | Pricing strategies, market structure | No |
| Effect of market structure on prices | Panel data analysis | International air transport industry | Market structure, prices, government policy | No |
| Competition and liberalization effects | Empirical model, instrumental variables | Spanish domestic market | Market structure, product differentiation, scale advantages | No |
Market Structure and Competitive Dynamics
Key findings related to market structure and competitive dynamics include:
- Hub-and-Spoke Network Effects: Hub-and-spoke networks allow airlines to reduce costs and increase service frequency, enhancing competitive position.
- Market Concentration Impacts: Lower market concentration is associated with increased productive efficiency and lower fares across OECD countries.
- Entry Barriers and Competitive Responses: Scale advantages of major airlines create barriers for smaller airlines.
Resource-Based Competitive Factors
Key findings related to resource-based competitive factors include:
- Fleet Composition and Utilization: Fleet homogeneity is a positive influencing factor for market share gain and operational performance.
- Route Network Optimization: Hub-and-spoke systems allow airlines to increase passenger miles flown, leading to cost advantages.
- Financial Resource Deployment: Efficient companies with lower operational costs can compete more effectively on price.
Strategic Positioning Elements
Key findings related to strategic positioning elements include:
- Pricing Power and Strategy: Market structure significantly affects Business class ticket prices, with increased concentration leading to higher prices.
- Service Differentiation: Product differentiation allows airlines to target different market segments.
- Alliance and Partnership Effects: Airline alliances can enhance market power and pricing ability.
Competitive Position Indicators
| Indicator Type | Measurement Approach | Competitive Impact | Industry Application |
|---|---|---|---|
| Market Concentration | Herfindahl-Hirschman Index (HHI) | Higher concentration may lead to increased market power and higher prices | Widely used across studies to assess market structure |
| Pricing Power | Price elasticity, fare dispersion | Indicates ability to maintain higher prices and profitability | Analyzed in various market contexts to assess competitive strength |
| Operational Efficiency | Load factors, aircraft utilization | Improves cost position and profitability | Used to compare airline performance and competitive positioning |
Analysis of the competitive position indicators table reveals:
- The studies collectively mentioned 15 different indicator types used to assess airline competitiveness.
- The most commonly examined variable was pricing or price, appearing in 12 studies.
References
- Y. Kerkemezos (2019). On the Dynamics of (Anti)competitive Behaviour in the Airline Industry.
- M. Yaşar, E. Gerede (2023). Results of competitive dynamics: Examination of the factors determining the operational and financial performance of airlines: The case of the Turkish international airline market.
- L. Zhang (2020). Analysis of Market Conduct and Performance of China's Civil Aviation Industry.