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Inter-Modal Competition in the Brazilian Interstate Travel Market

Inter-Modal Competition in the Brazilian Interstate Travel Market. Frederico Araujo Turolla ESPM/FGV Moisés Diniz Vassallo Alessandro V. M. Oliveira NECTAR - Center for Studies of Airline Competition and Regulation. Objectives. Analyze Inter-Modal Competition (coaches vs airlines)

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Inter-Modal Competition in the Brazilian Interstate Travel Market

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  1. Inter-Modal Competition in the Brazilian Interstate Travel Market Frederico Araujo Turolla ESPM/FGV Moisés Diniz Vassallo Alessandro V. M. Oliveira NECTAR - Center for Studies ofAirline Competition and Regulation

  2. Objectives • Analyze Inter-Modal Competition (coaches vs airlines) • Focus: Intrastate travel market in Brazil • Reduced-form Model of Pricing Decisions of Coach Operators

  3. Intrastate Travel Market in Brazil • Heavily provided by private coach operators under public delegation; • Agency-based regulation introduced in 2002; price-cap regime to enhance competition;

  4. Market Structure • Global HHI: 0.31; • Route-level concentration: most routes are served by a single operator; • Intra-route Competition is only possible on few dense routes in which an oligopoly is present;

  5. Market Structure • Liberalization of the airline industry (three rounds 1992-2001): inter-modal competition increasingly relevant. • Airline price war periods: may be a source of competitive pressure on coaches • Is there really inter-modal interaction?

  6. Empirical Modelling • A Reduced-Form Pricing Model for Coach Transportation: Seasozality, and unobservables across time and cities

  7. The Data • Source: Instituto Brasileiro de Geografia e Estatística (IBGE) • IBGE´s National System of Consumer Price Indexes – IPCA • Transportation series: monthly, August 1999 – April 2005 (68) • Disaggregated to the level of the Metropolitan area – cities (7)

  8. Technique • FGLS (Feasible Generalized Least Squares); • Allowing for the presence of panel-specific AR(1) autocorrelation, cross-sectional correlation and heteroskedasticity across panels;

  9. Results Note: City and time effects ommited

  10. Results • There is a small but significant effect of airline fares on coach fares; • This may be evidence of intermodal interaction due to both airline and coach deregulation and increase in contestability; • Probably to the competition of premium coach passengers

  11. http://www.ita.br/~nectar

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