The Cost of Competition

The costs of competition

1. Introduction

In 1997 Schnell Air entered into the Innsbruck-Turin air market which at that time existed as a duopoly market (Innsbruck Air and Turin Air). Both Innsbruck Air and Turin Air have adapted to Schnell Air’s entry by either changing price or service. This paper will discuss:

 The strategic situation prior to Schnell Air entering the market (January 1997)

 Whether there is predatory pricing by Innsbruck Air and Turin Air as a reaction to Schnell Air entering the market

 A proposed strategic response by Schnell Air to the adaptations made by Innsbruck Air and Turin.

2. Assumptions made for the analysis

Fare structure: I assume that there is an uneven distribution of the different ticket classes used on each flight. More advance fare tickets are sold than full fare tickets. This distribution was assumed for all travel days (no distinction between weekdays and weekend days). For the situation prior to and immediately after Schnell Air entering the market see Appendix 2, for the distribution after the reaction of Turin Air and Innsbruck Air’s reaction to the market entry of Schnell Air see Appendix