In this paper, we examine how strategic interactions affect airline network. We develop a three stage duopoly game: at stage 1 airlines determines their network structure (linear versus hub-and-spoke). At stage 2 they decide on their capacities, and at stage 3 firms compete in quantities. The main feature of the model is that firms have to decide on network structure and capacities while facing demand uncertainty. We show that while hubbing is efficient, airlines may choose a linear network for strategic reasons. Furthermore, we show that this structure softens competition by preventing contagion of competition across market
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Paper provided by Laval - Recherche en Energie in its series Papers with number
99-06.
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
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