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Vertical relations in the air transport industry: A facility-rivalry game

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  • D’Alfonso, Tiziana
  • Nastasi, Alberto

Abstract

This paper investigates contracts between airports and airlines, in the context of two competing facilities and three types of agreements. The downstream market consists in a route operated by one leader and n−1 followers competing àla Stackelberg in each facility. We develop a multistage game where each airport and its dominant airline decide whether to enter into a contract and which one to engage in. We find that the airport and its dominant airline have incentives to collude in each facility. Nevertheless, the equilibrium is not efficient in terms of social welfare: there is a misalignment between private and social incentives.

Suggested Citation

  • D’Alfonso, Tiziana & Nastasi, Alberto, 2012. "Vertical relations in the air transport industry: A facility-rivalry game," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 993-1008.
    • Handle: RePEc:eee:transe:v:48:y:2012:i:5:p:993-1008
    DOI: 10.1016/j.tre.2012.03.003
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