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Airline Code-Share Alliances and Their Competitive Effects

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  • Philip G. Gayle

Abstract

Code-share alliances have become a prominent feature in the competitive landscape of the airline industry. However, policy makers are extremely hesitant to approve proposed code-share alliances when the potential partners’ route networks have significant overlap. The main concern is that an alliance may facilitate price collusion on partners’ overlapping routes. This article shows how policy makers can use a structural econometric framework to quantify the competitive effects of proposed code-share alliances, where potential alliance partners compete on overlapping routes in the prealliance industry. As an example, I apply the econometric model to the Delta/Continental/Northwest alliance. This proposed alliance was initially greeted with skepticism by the U.S. Department of Transportation owing to the potential partners’ unprecedented level of route network overlap. For the markets considered in my analyses, it appears as though the ultimate approval of the alliance by policy makers was justified.

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Bibliographic Info

Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 50 (2007)
Issue (Month): ()
Pages: 781-819

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Handle: RePEc:ucp:jlawec:v:50:y:2007:p:781-819

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Chun, So Yeon & Kleywegt, Anton J & Shapiro, Alexander, 2011. "Revenue management in resource exchange seller alliances," MPRA Paper 34657, University Library of Munich, Germany.
  2. Brueckner, Jan K. & Proost, Stef, 2010. "Carve-outs under airline antitrust immunity," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(6), pages 657-668, November.
  3. Jan K. Brueckner & Pierre M. Picard, 2012. "Airline Alliances, Carve-Outs and Collusion," CREA Discussion Paper Series 12-09, Center for Research in Economic Analysis, University of Luxembourg.
  4. 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, Elsevier, vol. 30(6), pages 735-747.
  5. Du, Yan & McMullen, B. Starr & Kerkvliet, Joe R., 2008. "The economic impact of the ATA/Southwest Airlines code-share agreement," Research in Transportation Economics, Elsevier, vol. 24(1), pages 51-60.
  6. Chen, Yongmin & Gayle, Philip, 2013. "Mergers and Product Quality: Evidence from the Airline Industry," MPRA Paper 51238, University Library of Munich, Germany.
  7. 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 244-73, November.
  8. Stephen Martin, 2012. "Market Structure and Market Performance," Review of Industrial Organization, Springer, Springer, vol. 40(2), pages 87-108, March.

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