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

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

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

 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; Market Structure

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

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

 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) The Data

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

Results Note: City and time effects ommited

 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 Results