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Entry and Exit in Hub-Spoke Networks

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Author Info
Ken Hendricks
Michele Piccione
Guofu Tan
Abstract

We offer an explanation for why regional carriers may not survive in hub-spoke networks. When a regional carrier and a hub operator compete in a spoke market, both will suffer losses in that market. But if the hub operator exists in the spoke market, its profits in connecting markets will fall. As long as the number of such markets is large enough, it is a dominant strategy for the hub operator not to exit from the spoke market. The regional carrier is then forced to exit, assuming fixed costs are not sunk.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 28 (1997)
Issue (Month): 2 (Summer)
Pages: 291-303
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Handle: RePEc:rje:randje:v:28:y:1997:i:summer:p:291-303

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  2. Marco J. van der Leij, 2003. "Competing Transport Networks," Tinbergen Institute Discussion Papers 03-009/1, Tinbergen Institute. [Downloadable!]
  3. Felipe Balmaceda & Eduardo Saavedra, 2004. "Vertical Integration and Shared Facilities in Unregulated Industries," Documentos de Trabajo 195, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  4. Ana, MAULEON & JosŽ, SEMPERE-MONERRIS & Vincent, VANNETELBOSCH, 2005. "Networks of Manufacturers and Retailers," Discussion Papers (ECON - Département des Sciences Economiques) 2005036, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  5. Richard G. Frank & Jacob Glazer & Thomas G. McGuire, 1998. "Measuring Adverse Selection in Managed Health Care," NBER Working Papers 6825, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Ming Hsin Lin, 2005. "Alliances and entry in a simple airline network," Economics Bulletin, Economics Bulletin, vol. 12(4), pages 1-11. [Downloadable!]
  7. Per J. Agrell & Jerome Pouyet, 2008. "Regulatory Competition in Network Interconnection Pricing," Review of Network Economics, Concept Economics, vol. 7(1), pages 111-135, March. [Downloadable!]
  8. Ivaldi, Marc & Pouyet, Jérôme & de Villemeur, Étienne, 2003. "Entry in the Passenger Rail Industry : A Theoretical Investigation," IDEI Working Papers 192, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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