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Vertical differentiation and airline alliances: The effect of antitrust immunity

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  • Fageda, Xavier
  • Flores-Fillol, Ricardo
  • Lin, Ming Hsin

Abstract

This paper explores the impact of granting antitrust immunity (ATI) to airline alliances in a novel and realistic framework characterized by vertically-differentiated air services. Our theoretical model suggests that non-ATI alliances result in higher quality services at higher fares, whereas granting ATI produces the opposite effect. Using data on the transatlantic market over the period 2010–2017, our theoretical findings on service quality are empirically confirmed. We also relate our theoretical predictions on fares to the empirical results in Brueckner and Singer (2019). Our results indicate that alliances (ATI and non-ATI) concentrate a higher proportion of frequencies on high-quality routings, although airport congestion could mitigate this effect.

Suggested Citation

  • Fageda, Xavier & Flores-Fillol, Ricardo & Lin, Ming Hsin, 2020. "Vertical differentiation and airline alliances: The effect of antitrust immunity," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:regeco:v:81:y:2020:i:c:s0166046219302479
    DOI: 10.1016/j.regsciurbeco.2020.103517
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    Cited by:

    1. Le, Huubinh B. & Yimga, Jules O., 2023. "Codeshare restrictions as antitrust remedy," Transport Policy, Elsevier, vol. 138(C), pages 17-24.
    2. 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).

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    More about this item

    Keywords

    Alliance; Antitrust immunity; Vertical differentiation; Double marginalization; Congestion;
    All these keywords.

    JEL classification:

    • D - Microeconomics
    • L - Industrial Organization
    • L - Industrial Organization
    • L - Industrial Organization
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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