Faculty of Economics and Business Administration Publications Database

The Functioning of Inter-modal competition in the Transportation Market: Evidence from the entry of low-cost Airlines in Germany

Niffka, Marko
Volume: 8
Number: 2
Pages: 189 - 211
Month: June
ISSN-Print: 1446-9022
Link External Source: Online Version
Year: 2009
Keywords: Railroads; Price strategies; Incentive constraints; Regulation
Abstract: We investigate the entry of low-cost airlines (LCAs) in the German market. The strong competitive pressure of LCAs forced incumbent air and rail operators to reconsider their pricing strategy. Lufthansa reacted by a drastic cut of all prices for all intra-German origin and destinations (O&Ds). The physical conditions of DB, the incumbent railroad operator, made it harder to react. Being an open system, changing the price system on one O&Ds has substantial opportunity costs on other O&Ds in the same rail network. This imposes constraints on price strategies LCA and Lufthansa do not have to satisfy to the same extent.