Strategic Effects Of Airline Alliances
AbstractThis paper looks at the endogenous formation of airline alliances bymeans of a two-stage game where first airlines decide whether to form analliance and then fares are determined. We analyze the profitability and thestrategic effects of airline alliances when two complementary alliances,following different paths, may be formed to serve a certain city-pair market.The formation of a complementary alliance is shown to hurt outsiders and thatfares decrease in the interline market. Contrary to what might be expected, wefind that complementary alliances are not always profitable, even in thepresence of economies of traffic density. The interplay between market size, thedegree of product differentiation and the intensity of economies of trafficdensity determines whether the market equilibrium entails no alliances, a singlealliance or a double alliance.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-06.
Length: 40 pages
Date of creation: Jun 2006
Date of revision:
Publication status: Published by Ivie
complementary airline alliances; economies of traffic density; product differentiation;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-17 (All new papers)
- NEP-COM-2006-06-17 (Industrial Competition)
- NEP-MIC-2006-06-17 (Microeconomics)
- NEP-NET-2006-06-17 (Network Economics)
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