Inter-Modal Competition in the Brazilian

Abstract

This paper presents an analysis of inter-modal competition in Brazil by making use of a reduced-form model of coach operators’ pricing decisions in the interstate travel market. Interstate travel service is heavily provided by coaches, and the system is fully operated by the private sector under public delegation, through permits and authorizations. Agencybased regulation was introduced in 2002 and this new regulatory framework may stimulate competition in the market; particularly relevant in the new institutional design is the price cap regime that aims at enhancing the flexibility to change fares in response to demand and cost conditions. By analysing pricing decisions of coach operators in some cities within the country, we studied the sensitivity of coach fares to cost components and to air travel fares and therefore investigated whether there is competition with airlines after the regulatory reform. Inter-modal interaction among coach operators and airlines is found to be significant and probably due to the competition for a small set of premium, qualitysensitive, coach passengers.