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Carve-Outs Under Airline Antitrust Immunity

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  • Jan K. Brueckner

    ()
    (Department of Economics, University of California-Irvine)

  • Stef Proost

    ()
    (Center for Economic Studies, KULeuven)

Abstract

This paper offers the first formal economic analysis of carve-outs under airline antitrust immunity. 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 University of California-Irvine, Department of Economics in its series Working Papers with number 091004.

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Length: 38 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:irv:wpaper:091004

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Keywords: Carve-out; Antitrust immunity; Airline alliances;

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References

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  1. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1475-1498, December.
  2. 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 0502, GREEN.
  3. 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 ete0602, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  4. Philip G. Gayle, 2007. "Airline Code-Share Alliances and Their Competitive Effects," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 781-819.
  5. Jong-Hun Park & Anming Zhang, 2000. "An Empirical Analysis of Global Airline Alliances: Cases in North Atlantic Markets," Review of Industrial Organization, Springer, vol. 16(4), pages 367-384, June.
  6. 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, vol. 39(1), pages 1-18, January.
  7. Park, Jong-Hun & Zhang, Anming, 1998. "Airline alliances and partner firms' outputs," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 34(4), pages 245-255, December.
  8. 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, vol. 41(3), pages 427-449, September.
  9. 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, vol. 47(1), pages 195-222, April.
  10. DE BORGER, Bruno & PROOST, Stef & VAN DENDER, Kurt, 2007. "Private port pricing and public investment in port and hinterland capacity," Working Papers 2007019, University of Antwerp, Faculty of Applied Economics.
  11. Park, Jong-Hun, 1997. "The effects of airline alliances on markets and economic welfare," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(3), pages 181-195, September.
  12. Volodymyr Bilotkach, 2007. "Airline Partnerships and Schedule Coordination," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 41(3), pages 413-425, September.
  13. Chen, Yongmin & Gayle, Philip G., 2007. "Vertical contracting between airlines: An equilibrium analysis of codeshare alliances," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1046-1060, October.
  14. Oum, Tae Hoon & Yu, Chunyan & Zhang, Anming, 2001. "Global airline alliances: international regulatory issues," Journal of Air Transport Management, Elsevier, vol. 7(1), pages 57-62.
  15. Orit Hassin & Oz Shy, 2004. "Code-sharing Agreements and Interconnections in Markets for International Flights," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 337-352, 08.
  16. 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, vol. 51(4), pages 743-766, November.
  17. 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.
  18. Volodymyr Bilotkach, 2005. "Price Competition between International Airline Alliances," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 39(2), pages 167-190, May.
  19. Park, Jong-Hun & Zhang, Anming & Zhang, Yimin, 2001. "Analytical models of international alliances in the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 35(9), pages 865-886, November.
  20. 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.
  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, vol. 30(1), pages 39-61, February.
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Citations

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Cited by:
  1. Volodymyr Bilotkach & Kai Hüschelrath, 2013. "Airline Alliances, Antitrust Immunity, and Market Foreclosure," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1368-1385, October.
  2. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2009. "On the Problem of Network Monopoly," Working Papers 2009003, The University of Sheffield, Department of Economics, revised Mar 2009.
  3. Brueckner Jan K. & Picard Pierre M., 2013. "Airline Alliances, Carve-Outs and Collusion," Review of Network Economics, De Gruyter, vol. 12(2), pages 211-227, June.
  4. Bilotkach, Volodymyr & Fageda, Xavier & Flores-Fillol, Ricardo, 2013. "Airline consolidation and the distribution of traffic between primary and secondary hubs," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 951-963.
  5. Hüschelrath, Kai & Müller, Kathrin, 2012. "Market power, efficiencies, and entry: Evidence from an airline merger," ZEW Discussion Papers 12-070, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Benoot, W. & Brueckner, J.K. & Proost, S., 2013. "Intercontinental-airport regulation," Transportation Research Part B: Methodological, Elsevier, vol. 52(C), pages 56-72.
  7. Mantin, Benny, 2012. "Airport complementarity: Private vs. government ownership and welfare gravitation," Transportation Research Part B: Methodological, Elsevier, vol. 46(3), pages 381-388.
  8. Stephen Martin, 2012. "Market Structure and Market Performance," Review of Industrial Organization, Springer, vol. 40(2), pages 87-108, March.

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