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Demand Uncertainty and Airline Network Morphology with Strategic Interactions

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Author Info
Barla, Philippe ()

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Abstract

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 markets.

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File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/1999/9907.pdf
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Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9907.

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Date of creation: 1999
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Handle: RePEc:lvl:laeccr:9907

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Related research
Keywords: Airlines; Competition; Capacity constraints; Network; Uncertainty;

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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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  1. Sayed Ajaz Hussain & Serkan Bahceci, 2008. "Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation?," Working Papers tecipa-325, University of Toronto, Department of Economics. [Downloadable!]
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