IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v26y2017i3p590-609.html
   My bibliography  Save this article

The effects of major U.S. domestic airline code sharing and profit sharing rule

Author

Listed:
  • Caixia Shen

Abstract

This paper presents a structural model of code sharing among major U.S. domestic airlines and estimates a profit‐sharing rule. The profit‐sharing rule between partner firms in code sharing is estimated at 0.92, which suggests that the operating carrier acquires around 92% of profits from a round‐trip, and the marketing carrier retains 8% as a commission fee. Meanwhile, the economies of code sharing reduces marginal cost, and firms are able to price at higher markups. This implies that demand increases and consumers have larger surplus if code sharing creates new products.

Suggested Citation

  • Caixia Shen, 2017. "The effects of major U.S. domestic airline code sharing and profit sharing rule," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 590-609, September.
    • Handle: RePEc:bla:jemstr:v:26:y:2017:i:3:p:590-609
    DOI: 10.1111/jems.12202
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jems.12202
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jems.12202?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Park, Jong-Hun & Zhang, Anming & Zhang, Yimin, 2001. "Analytical models of international alliances in the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 35(9), pages 865-886, November.
    2. Volodymyr Bilotkach, 2005. "Price Competition between International Airline Alliances," Journal of Transport Economics and Policy, University of Bath, vol. 39(2), pages 167-190, May.
    3. Brueckner, Jan K & Whalen, W Tom, 2000. "The Price Effects of International Airline Alliances," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 503-545, October.
    4. Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
    5. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    6. Zhang, Anming & Zhang, Yimin, 2006. "Rivalry between strategic alliances," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 287-301, March.
    7. Harumi Ito & Darin Lee, 2007. "Domestic Code Sharing, Alliances, and Airfares in the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 50(2), pages 355-380.
    8. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1475-1498, December.
    9. Bamberger, Gustavo E & Carlton, Dennis W & Neumann, Lynette R, 2004. "An Empirical Investigation of the Competitive Effects of Domestic Airline Alliances," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 195-222, April.
    10. Philip G. Gayle, 2013. "On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 244-273, November.
    11. Jan K. Brueckner, 2003. "International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 105-118, February.
    12. Olivier Armantier & Oliver Richard, 2008. "Domestic airline alliances and consumer welfare," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 875-904, September.
    13. Caixia Shen, 2015. "Code Sharing and Merger: Continental, Delta and Northwest," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 10(4), pages 643-663, December.
    14. Goetz, Christopher F. & Shapiro, Adam Hale, 2012. "Strategic alliance as a response to the threat of entry: Evidence from airline codesharing," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 735-747.
    15. W. Whalen, 2007. "A panel data analysis of code-sharing, antitrust immunity, and open skies treaties in international aviation markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(1), pages 39-61, February.
    16. Jong-Hun Park & Anming Zhang, 2000. "An Empirical Analysis of Global Airline Alliances: Cases in North Atlantic Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(4), pages 367-384, June.
    17. Philip G. Gayle, 2008. "An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance," Journal of Law and Economics, University of Chicago Press, vol. 51(4), pages 743-766, November.
    18. Chew Chua & Hsein Kew & Jongsay Yong, 2005. "Airline Code-share Alliances and Costs: Imposing Concavity on Translog Cost Function Estimation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(4), pages 461-487, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rebecca Cleary & Jean-Paul Chavas, 2022. "Strategic supermarket pricing of private labels and manufacturer brands," Empirical Economics, Springer, vol. 62(6), pages 2921-2950, June.
    2. KO Ryuya & OHASHI Hiroshi, 2022. "Empirical Analysis of the Codeshare Effect on Airline Market Competition and Product Quality," Discussion papers 22080, Research Institute of Economy, Trade and Industry (RIETI).
    3. Lei He & Georgia Kosmopoulou, 2021. "Subcontracting Network Formation Among U.S. Airline Carriers," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 817-853, December.
    4. Juanjuan Qin & Kun Wang & Ziping Wang & Liangjie Xia, 2020. "Revenue sharing contracts for horizontal capacity sharing under competition," Annals of Operations Research, Springer, vol. 291(1), pages 731-760, August.
    5. Zakharenko, Roman & Luttmann, Alexander, 2023. "Downsizing the jet: A forecast of economic effects of increased automation in aviation," Transportation Research Part B: Methodological, Elsevier, vol. 170(C), pages 25-47.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Menezes Bezerra Sampaio, Raquel & Urdanoz, Miguel, 2022. "Airlines' cooperation in the US domestic market: Measuring the evolution of price gaps," Transportation Research Part A: Policy and Practice, Elsevier, vol. 166(C), pages 424-443.
    2. Brueckner, Jan K. & Flores-Fillol, Ricardo, 2020. "Market structure and quality determination for complementary products: Alliances and service quality in the airline industry," International Journal of Industrial Organization, Elsevier, vol. 68(C).
    3. Czerny, Achim I. & Jost, Peter-J. & Lang, Hao & Mantin, Benny, 2021. "Carrier collaboration with endogenous networks: Or, the limits of what carrier collaboration can achieve under antitrust immunity," Journal of Air Transport Management, Elsevier, vol. 94(C).
    4. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2015. "The effect of code-share agreements on the temporal profile of airline fares," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 42-54.
    5. Volodymyr Bilotkach, 2019. "Airline Partnerships, Antitrust Immunity, and Joint Ventures: What We Know and What I Think We Would Like to Know," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 37-60, February.
    6. Adler, Nicole & Mantin, Benny, 2015. "Government and company contracts: The effect on service and prices in international airline markets," Economics of Transportation, Elsevier, vol. 4(3), pages 166-177.
    7. Gayle, Philip G. & Xie, Xin, 2019. "Firms’ markup, cost, and price changes when policymakers permit collusion: Does antitrust immunity matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 680-707.
    8. Gayle, Philip G. & Thomas, Tyson, 2016. "Assessing firm behavior in carve-out markets: Evidence on the impact of carve-out policy," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 178-194.
    9. Philip G. Gayle & Xin Xie, 2018. "Entry Deterrence And Strategic Alliances," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1898-1924, July.
    10. Le, Huubinh B. & Yimga, Jules O., 2023. "Codeshare restrictions as antitrust remedy," Transport Policy, Elsevier, vol. 138(C), pages 17-24.
    11. Zhang, Anming & Czerny, Achim I., 2012. "Airports and airlines economics and policy: An interpretive review of recent research," Economics of Transportation, Elsevier, vol. 1(1), pages 15-34.
    12. Brueckner, Jan K. & Proost, Stef, 2010. "Carve-outs under airline antitrust immunity," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 657-668, November.
    13. Calzada, Joan & Fageda, Xavier & Safronov, Roman, 2022. "How do global airline alliances affect flight frequency? Evidence from Russia," Journal of Air Transport Management, Elsevier, vol. 98(C).
    14. Yimga, Jules, 2018. "Domestic code-sharing agreements and on-time performance: Evidence from the US airline industry," Transport Policy, Elsevier, vol. 71(C), pages 14-27.
    15. Ivaldi, Marc & Petrova, Milena & Urdanoz, Miguel, 2022. "Airline cooperation effects on airfare distribution: An auction-model-based approach," Transport Policy, Elsevier, vol. 115(C), pages 239-250.
    16. Jiang, Changmin & Zhang, Anming, 2014. "Effects of high-speed rail and airline cooperation under hub airport capacity constraint," Transportation Research Part B: Methodological, Elsevier, vol. 60(C), pages 33-49.
    17. Brueckner Jan K. & Picard Pierre M., 2013. "Airline Alliances, Carve-Outs and Collusion," Review of Network Economics, De Gruyter, vol. 12(2), pages 211-227, June.
    18. Goetz, Christopher F. & Shapiro, Adam Hale, 2012. "Strategic alliance as a response to the threat of entry: Evidence from airline codesharing," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 735-747.
    19. Lin, Ming Hsin & Mantin, Benny, 2015. "Airport privatization in international inter-hub and spoke networks," Economics of Transportation, Elsevier, vol. 4(4), pages 189-199.
    20. Gayle, Philip G. & Brown, Dave, 2014. "Airline strategic alliances in overlapping markets: Should policymakers be concerned?," Economics of Transportation, Elsevier, vol. 3(4), pages 243-256.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:26:y:2017:i:3:p:590-609. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.