Did the Entry of Low Cost Companies Foster the Growth of Strategic Alliances in the Airline Industry?
AbstractWe adopt a vertical differentiation model to study the effect of deregulation in the airline industry. In particular, we show that traditional carriers form international alliances on hub-and-spoke networks to compete against low cost companies, which successfully serve short haul routes at relatively cheap prices. The alliance is profitable if the gain in terms of economies of density is sufficiently high and consumers’ utility is not significantly decreased by the indirect connection. Social welfare is also evaluated: we find interval regions where the alliance is welfare enhancing, even if it is not convenient for existing flag carriers.
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Bibliographic InfoArticle provided by SIPI Spa in its journal Rivista di Politica Economica.
Volume (Year): 97 (2007)
Issue (Month): 1 (January-February)
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Other versions of this item:
- A. Mantovani & O. Tarola, 2006. "Did the entry of low cost companies foster the growth of strategic alliances in the airline industry?," Working Papers 574, Dipartimento Scienze Economiche, Universita' di Bologna.
- L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
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