Restraints on competition in the Russian air passenger market

Abstract

This article discusses the results of a continuous study of Russian domestic air carriers conducted in 2006–2016 and analyzes the main barriers to entry into the passenger air travel market and their impact on competition in this field. There are significant structural barriers that prevent companies from entering this market. This situation challenges the existing concept and the idea of the domestic air transportation market as a quasi-competitive one. To describe the structure of the Russian passenger air transport market, we introduce the notion of “discrete competition,” reflecting shifted density of market concentration towards small regional airlines. The latter are usually united by ownership mechanisms or affiliation with an airport. They possess considerable market power, but at the same time have an insignificant market share in the overall Russian passenger air market. Administrative barriers also play a crucial role in restraining competition. Furthermore, current institutional conditions are favourable for vertical ‘airport — airline’ integration which results in a fundamental transformation, as described by Williamson, and can be detrimental to competition. As our research findings have shown, there is a trade-off between existing vertically integrated structures in the air passenger market and public welfare.