This paper presents a microeconomic analysis to explore the impacts of market force and government regulation on airlines’ flight fare and safety investment. Three specific mechanisms associated with fare and safety decisions are discussed, i.e., duopoly competition, social optimum, and safety regulation. Under all mechanisms, consumers are assumed to have heterogeneous safety tastes, and airlines are assumed to make optimal decisions in a two-stage game of first safety investment and then flight fare. It is found that the differentiation of safety can be beneficial to not only commercial airlines but also the society when there are symmetric and complete information of safety between consumers and airlines. Furthermore, safety regulation from the government can assure the higher social welfare at the cost of some loss of airlines’ profits.
How Market Force and Government Regulation Affect Flight Fare and Safety Investment: A Microeconomic Analysis
17th COTA International Conference of Transportation Professionals ; 2017 ; Shanghai, China
CICTP 2017 ; 1001-1008
2018-01-18
Aufsatz (Konferenz)
Elektronische Ressource
Englisch
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