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 consumersâ 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 InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 574.
Date of creation: Sep 2006
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- Andrea Mantovani & Ornella Tarola, 2007. "Did the Entry of Low Cost Companies Foster the Growth of Strategic Alliances in the Airline Industry?," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 189-220, January-F.
- L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-03 (All new papers)
- NEP-COM-2007-03-03 (Industrial Competition)
- NEP-CSE-2007-03-03 (Economics of Strategic Management)
- NEP-IND-2007-03-03 (Industrial Organization)
- NEP-TUR-2007-03-03 (Tourism Economics)
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