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Carve-Outs under Airline Antitrust Immunity

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  • Jan K. Brueckner
  • Stef Proost

Abstract

This paper offers the first formal economic analysis of carve-outs under airline antitrust im- munity. Carve-outs are designed to limit the potential anticompetitive effects of cooperation by alliance partners in hub-to-hub markets, where they provide overlapping nonstop service. While the paper shows that carve-outs are beneficial when the alliance does not involve full integration of the partners’ operations on the hub-to-hub route, its key point is that a carve-out may be harmful when imposed on a joint-venture alliance. A JV alliance involves full exploitation of economies of traffic density on the hub-to-hub route, and a carve-out prevents the realization of these benefits. While a carve-out may limit anticompetitive incentives on the hub-to-hub route, welfare may be reduced if the resulting gains are overshadowed by the efficiency loss generated by the carve-out.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2848.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2848

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Keywords: carve-out; alliance; antitrust immunity; airlines;

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References

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  1. Oum, Tae Hoon & Yu, Chunyan & Zhang, Anming, 2001. "Global airline alliances: international regulatory issues," Journal of Air Transport Management, Elsevier, Elsevier, vol. 7(1), pages 57-62.
  2. Park, Jong-Hun & Zhang, Anming & Zhang, Yimin, 2001. "Analytical models of international alliances in the airline industry," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 35(9), pages 865-886, November.
  3. Philip G. Gayle, 2008. "An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 51(4), pages 743-766, November.
  4. Bruno De Borger & Stef Proost & Kurt Van Dender, 2007. "Private port pricing and public investment in port and Hinterland capacity," Center for Economic Studies - Discussion papers, Katholieke Universiteit Leuven, Centrum voor Economische Studiën ces0708, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  5. Ricardo Flores-Fillol & Rafael Moner-Colonques, 2007. "Strategic Formation of Airline Alliances," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 41(3), pages 427-449, September.
  6. Barla, Philippe & Constantatos, Christos, 2005. "On the Choice between Strategic Alliance and Merger in the Airline Sector: the Role of Strategic Effects," Cahiers de recherche, GREEN 0502, GREEN.
  7. Jan K. Brueckner, 2003. "International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 105-118, February.
  8. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 19(10), pages 1475-1498, December.
  9. Philip G. Gayle, 2007. "Airline Code-Share Alliances and Their Competitive Effects," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 50, pages 781-819.
  10. De Borger Bruno & Dunkerley Fay & Proost Stef, 2006. "Strategic investment and pricing decisions in a congested transport corridor," Energy, Transport and Environment Working Papers Series, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment ete0602, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  11. Park, Jong-Hun & Zhang, Anming, 1998. "Airline alliances and partner firms' outputs," Transportation Research Part E: Logistics and Transportation Review, Elsevier, Elsevier, vol. 34(4), pages 245-255, December.
  12. Jong-Hun Park & Anming Zhang, 2000. "An Empirical Analysis of Global Airline Alliances: Cases in North Atlantic Markets," Review of Industrial Organization, Springer, Springer, vol. 16(4), pages 367-384, June.
  13. Park, Jong-Hun, 1997. "The effects of airline alliances on markets and economic welfare," Transportation Research Part E: Logistics and Transportation Review, Elsevier, Elsevier, vol. 33(3), pages 181-195, September.
  14. Bamberger, Gustavo E & Carlton, Dennis W & Neumann, Lynette R, 2004. "An Empirical Investigation of the Competitive Effects of Domestic Airline Alliances," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 47(1), pages 195-222, April.
  15. Brueckner, Jan K & Whalen, W Tom, 2000. "The Price Effects of International Airline Alliances," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 43(2), pages 503-45, October.
  16. Orit Hassin & Oz Shy, 2004. "Code-sharing Agreements and Interconnections in Markets for International Flights," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 12(3), pages 337-352, 08.
  17. Chen, Yongmin & Gayle, Philip G., 2007. "Vertical contracting between airlines: An equilibrium analysis of codeshare alliances," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(5), pages 1046-1060, October.
  18. Volodymyr Bilotkach, 2005. "Price Competition between International Airline Alliances," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 39(2), pages 167-190, May.
  19. Park, Jong-Hun & Park, Namgyoo K. & Zhang, Anming, 2003. "The impact of international alliances on rival firm value: a study of the British Airways/USAir Alliance," Transportation Research Part E: Logistics and Transportation Review, Elsevier, Elsevier, vol. 39(1), pages 1-18, January.
  20. Volodymyr Bilotkach, 2007. "Airline Partnerships and Schedule Coordination," Journal of Transport Economics and Policy, London School of Economics and University of Bath, London School of Economics and University of Bath, vol. 41(3), pages 413-425, September.
  21. W. Whalen, 2007. "A panel data analysis of code-sharing, antitrust immunity, and open skies treaties in international aviation markets," Review of Industrial Organization, Springer, Springer, vol. 30(1), pages 39-61, February.
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Citations

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Cited by:
  1. 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.
  2. Stephen Martin, 2012. "Market Structure and Market Performance," Review of Industrial Organization, Springer, Springer, vol. 40(2), pages 87-108, March.
  3. Hüschelrath, Kai & Müller, Kathrin, 2012. "Market power, efficiencies, and entry: Evidence from an airline merger," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-070, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Bilotkach, Volodymyr & Hüschelrath, Kai, 2012. "Airline alliances, antitrust immunity and market foreclosure," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 10-083 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Bilotkach, Volodymyr & Fageda, Xavier, 1975- & Flores-Fillol, Ricardo, 2012. "Airline Consolidation and the Distribution of Traffic between Primary and Secondary Hubs," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/211632, Universitat Rovira i Virgili, Department of Economics.
  6. Benoot, W. & Brueckner, J.K. & Proost, S., 2013. "Intercontinental-airport regulation," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 52(C), pages 56-72.
  7. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2009. "On the Problem of Network Monopoly," Working Papers, The University of Sheffield, Department of Economics 2009003, The University of Sheffield, Department of Economics, revised Mar 2009.
  8. Mantin, Benny, 2012. "Airport complementarity: Private vs. government ownership and welfare gravitation," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 46(3), pages 381-388.

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