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Research Article

A Study on the Strategic Types of Korean Air Transport Operators

Ahn, Yeongsu

Published: January 1998 · Vol. 27, No. 4 · pp. 937-953
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Abstract

The domestic scheduled airline industry, which had been in a monopoly state under Korean Air until the mid-1980s, transitioned to oligopolistic competition when Asiana Airlines entered the market as a new entrant. This study examines the strategic types with which these two carriers compete in the domestic routes market. According to the results of this study, first, both oligopolistic firms pursue a Bertrand-type strategic behavior, and the degree of this behavior is stronger for Firm B than for Firm A. This represents a considerable departure from prior research suggesting that oligopolistic firms' strategic types are closer to the Cournot form. Second, the behavioral strategies of Firm A and Firm B tend to diverge as demand elasticity increases. Specifically, Firm A tends toward a Cournot strategy as elasticity increases, whereas Firm B tends to pursue a Bertrand strategy more intensely. Third, Firm B competes in a state where its demand elasticity exceeds the Bertrand model's critical threshold of −1, resulting in a marginal profit of zero or below. Consequently, Firm B faces difficulty in responding to Firm A's price competition.