Concerns on market power conferred by airport dominance and the debates ofhub premiums have attracted longstanding attention from governments andacademics alike. Most previous studies mainly focus on the fully deregulatedmarkets such as the United States and Europe, what remains unknown is howsuch effects change when a country evolves from a tightly controlled regime toa deregulated market.This research analyses the effects of airport dominance on airline pricing powerwith the empirical study based on the Chinese domestic market using fixed-effect panel data models. Results from the regression analysis indicate thatairport dominance is the most important source of pricing power in the graduallyderegulated Chinese domestic market. Hub carriers are able to charge higherprices to premium class passengers and non-hub carriers can benefit from the“umbrella effects” of hub premiums. However, hub carriers are not able totranslate their airport dominance to pricing power in the economy class market,whereas non-hub carriers even have to reduce the prices as their marketshares at major airports increase. This study contributes to the literature byexplicitly segmenting the market into economy and premium classes. Theresults have important policy implications.
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