Abstract:
Concerns on market power conferred by airport dominance and the debates of
hub premiums have attracted longstanding attention from governments and
academics alike. Most previous studies mainly focus on the fully deregulated
markets such as the United States and Europe, what remains unknown is how
such effects change when a country evolves from a tightly controlled regime to
a deregulated market.
This research analyses the effects of airport dominance on airline pricing power
with the empirical study based on the Chinese domestic market using fixed-
effect panel data models. Results from the regression analysis indicate that
airport dominance is the most important source of pricing power in the gradually
deregulated Chinese domestic market. Hub carriers are able to charge higher
prices to premium class passengers and non-hub carriers can benefit from the
“umbrella effects” of hub premiums. However, hub carriers are not able to
translate their airport dominance to pricing power in the economy class market,
whereas non-hub carriers even have to reduce the prices as their market
shares at major airports increase. This study contributes to the literature by
explicitly segmenting the market into economy and premium classes. The
results have important policy implications.
