| Abstract: | This paper empirically analyzes dynamic change in inter‐firm rivalry between Japanese low‐cost carriers (LCC) and full‐service carriers, and deduces the dynamic change in consumer surplus after an LCC enters a market. Our findings are that: (i) the conduct parameters of LCC and reacting full‐service carriers were extraordinarily low when competition started; (ii) the conduct parameters were restored to, or even exceeded, the pre‐entry level in the third year of LCC entry; and (iii) gains in total welfare were recognized for five of the nine markets, whereas in three markets only the airline industry benefited, and in one market, total welfare decreased. |
