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Airline Competition and Network Structure

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    Abstract

    This paper characterizes the equilibria in airline networks and their welfare implications in an unregulated environment. Competing airlines may adopt either fully-connected (FC) or hub-and-spoke (HS) network structures; and passengers exhibiting low brand loyalty to their preferred carrier choose an outside option to travel so that markets are partially served by airlines. In this context, carriers adopt hubbing strategies when costs are sufficiently low, and asymmetric equilibria where one carrier chooses a FC strategy and the other chooses a HS strategy may arise. Quite interestingly, flight frequency can become excessive under HS network configurations.

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    Bibliographic Info

    Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 683.07.

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    Length: 40
    Date of creation: 19 Mar 2007
    Date of revision:
    Handle: RePEc:aub:autbar:683.07

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    Related research

    Keywords: fully-connected networks; hub-and-spoke networks; brand loyalty; fully-served markets; partially-served markets;

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    References

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    1. Jan Brueckner & Ricardo Flores-Fillol, 2007. "Airline Schedule Competition," Review of Industrial Organization, Springer, Springer, vol. 30(3), pages 161-177, May.
    2. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2005. "Network competition - the co-existence of hub-and-spoke and point-to-point," ERSA conference papers ersa05p703, European Regional Science Association.
    3. Barla, Philippe & Constantatos, Christos, 2005. "Strategic interactions and airline network morphology under demand uncertainty," European Economic Review, Elsevier, vol. 49(3), pages 703-716, April.
    4. Ken Hendricks & Michele Piccione & Guofu Tan, 1999. "Equilibria in Networks," Econometrica, Econometric Society, Econometric Society, vol. 67(6), pages 1407-1434, November.
    5. Brueckner, Jan K., 2002. "Network Structure and Airline Scheduling," Working Papers 02-0112, University of Illinois at Urbana-Champaign, College of Business.
    6. Brueckner, Jan K & Whalen, W Tom, 2000. "The Price Effects of International Airline Alliances," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 503-45, October.
    7. Brueckner, Jan K. & Spiller, Pablo T., 1991. "Competition and mergers in airline networks," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(3), pages 323-342, September.
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    Cited by:
    1. Volodymyr Bilotkach & Xavier Fageda & Ricardo Flores-Fillol, 2008. "Scheduled service versus personal transportation: the role of distance," Working Papers, Xarxa de Referència en Economia Aplicada (XREAP) XREAP2008-13, Xarxa de Referència en Economia Aplicada (XREAP), revised Dec 2008.

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