An Econometric Analysis of the Impact of Low-cost Carrier's entry on Regional and National Economy : The case of the US and Japan

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(1)The cross-sectional analyses of US duopoly and 3-firm oligopoly air markets reveal that the entry of Southwest Airlines has significant impact on the market expansion. Due to its entry, the market demand curve shifts upward and the price and output increase in the short run, but in the long run the market price goes down. As for outputs, Southwest's rival faces significant decrease in its output in the long run, especially where Southwest and its rival base the same O/D airports.(2)The panel analyses of the US duopoly and 3-firm oligopoly air market reveal that Southwest maintains its price after its entry and its rival(s) is(are) also permanently involved in the competition. Therefore, the prices will not restore to the pre-entry level. As for other entry case, price competitions start shortly after the new entry but the price war tends to end in a couple of years and prices will restore to the pre-entry level.(3)There are few price competitions between Japanese major airlines but they compete with Shinkansen Express. Instead, Japanese major airlines are doing quality competition. Furthermore, Japanese major airlines earn their profit from long-haul jointly-monopolized markets such as Tokyo-Sapporo and Tokyo-Kyushu seem to cross-subsidy international markets and domestic markets where they compete with Shinkansen and domestic low-density markets.