The Conference Proceedings of the 1999 Air Transport Research Group (ATRG) of the WCTR Society
In this paper, we develop a model with which allows us to measure not only the changes in equilibrium outcomes and welfare consequences of liberalizing a bilateral air transport agreement, but also the distribution of the gains and losses to carriers and consumers of each bilateral country and those of the third foreign countries. Our model also allows to measure the effects of changes in a bilateral agreement on the amount of traffic diversion between the direct bilateral routes and the indirect routes via a third country. We also provide an extension of our model to a case of oligopoly market outcome (Coumot Nash equilibrium). In our model, quality aspects are treated in the framework of hedonic price theory by specifying the quality-adjusted price (quantity) as a multiplication of the observed price (quantity) by the reciprocal quality index function (the quality index function). Numerical simulations were conducted to measure the effects of changing the following major policy levers in a bilateral air transport agreement: 1) Removing price regulation while retaining frequency and entry restrictions; 2) Removing price and entry regulation while retaining frequency restrictions; 3) Removing frequency regulations while retaining price and entry regulations; 4) Removing frequency and entry regulations while retaining price regulation; 5) Removing price and frequency regulations while retaining entry restriction; and 6) Removing all price, frequency and entry regulations (de facto, open skies).