We explore how an incumbent airline firm structures its route network under the threat of entry caused by deregulation. We show that entry induces the incumbent firm to strategically alter its flight operating network from a fully connected network (FC) to a hub-and-spoke network (HS). While most of the literature always assumed that the use of a HS network is primarily for the purpose of cost reduction, we show that hub-and-spoke operation can be used as a strategic device by the incumbent firm when it faces a threat of entry in its operating zone.
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Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number
1997-10.
Length: 16 pages Date of creation: May 1997 Date of revision: Publication status: Published in: Keio Economic Studies. 1998; 35(2): 71-82 Handle: RePEc:kud:kuieci:1997-10
Find related papers by JEL classification: L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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