Ryanair / Aer Lingus case: Some comments ACE Annual Conference Toulouse – November 30, 2007 Marc IVALDI

2 General comments Econometricians get fun Same for the judges??? Pedagogical presentation A glossary of variables would be useful No descriptive statistics Methodology : reduced form model Regression analysis

3 Reduced form model

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5 Main comment and question Robustness of measures of elasticities of Aer Lingus’ fares to Ryanair’s presence [2%, 7%] What does the presence dummy measure? Presence & level of frequencies Frequency & cost (distance) Entry & change in frequencies Dynamics: How do prices affect frequency? Use cross-sections or pooled cross-sections!!!! –Same conclusion, even stronger??!

6 The analysis does not account for …. Differentiation Business versus economy Average prices Asymmetry No simultaneous equations A’s prices affect B’s prices and vice versa Different competitors Equilibrium What about the number of passengers? What about the conduct of firms? How to run counterfactuals?

7 Request All elements for performing a structural analysis

8 Theoretical analysis Fully connected : AH, HB, AB Hub-and-spoke: AH, HB

9 Theoretical analysis Price and frequency competition Deregulation : Low air transport costs call for hubbing Mechanism Increase in cost per passenger Economies of traffic density weaken Incentives to pool passenger vanish Result Asymmetric configurations appear at equilibrium

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