Chillin'Competition

A thought to share:

In going through the RyanAir/AerLingus and Iberia/Vueling/Clickair cases – and following a discussion with David Hull yesterday –  I have increased difficulties with the idea  that low cost companies and flag carriers operate on the same relevant market.

Intuitively, I am prone to think that the demand served by low costs companies and flag carriers comprises several groups of customers, with different elasticities. In particular,  low costs carriers likely face a bunch of captive customers, which would never switch to a flag carrier. In the same vein, flag carriers probably face a share of captive demand, which would never switch to a low cost carrier.  I may be wrong out of sufficient technical knowledge, but it seems possible to argue that we have two distinct product markets (which, as the case may be, possibly exercise a competitive constraint on each other). My intuition is further confirmed by the fact that the features of low cost and flag carrier services are very different.

If I find time I’ll try to go through the decisions again, which might conceal the answer to this.