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On the Choice between Strategic Alliance and Merger in the Airline Sector: the Role of Strategic Effects

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  • Barla, Philippe
  • Constantatos, Christos

Abstract

We consider a market with three competitors, two of which decide to cooperate. Firms first choose capacity under demand uncertainty then compete in quantities after the uncertainty has been resolved. We specify strategic alliance (SA) as an agreement where two airlines jointly choose capacity and divide it among themselves. Contrary to the full merger case, after demand is revealed the alliance members market their capacity shares independently. Our main result is that the profit of the cooperating firms is greater under SA than under full merger.

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Bibliographic Info

Paper provided by GREEN in its series Cahiers de recherche with number 0502.

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Date of creation: 2005
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Handle: RePEc:lvl:lagrcr:0502

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Keywords: Strategic alliance; capacity; airline industry;

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  1. Barla, Philippe & Constantatos, Christos, 2005. "Strategic interactions and airline network morphology under demand uncertainty," European Economic Review, Elsevier, vol. 49(3), pages 703-716, April.
  2. 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.
  3. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  4. repec:ebl:ecbull:v:12:y:2005:i:4:p:1-11 is not listed on IDEAS
  5. Morasch, Karl, 2000. "Strategic alliances as Stackelberg cartels - concept and equilibrium alliance structure," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 257-282, February.
  6. Chen, Zhiqi & Ross, Thomas W., 2003. "Cooperating upstream while competing downstream: a theory of input joint ventures," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 381-397, March.
  7. Lin, Ming Hsin, 2004. "Strategic airline alliances and endogenous Stackelberg equilibria," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(5), pages 357-384, September.
  8. Barla, Philippe & Constantatos, Christos, 2000. "Airline network structure under demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 36(3), pages 173-180, September.
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Cited by:
  1. Jan K. Brueckner & Stef Proost, 2009. "Carve-Outs Under Airline Antitrust Immunity," Working Papers 091004, University of California-Irvine, Department of Economics.
  2. A. Mantovani & O. Tarola, 2006. "Did the entry of low cost companies foster the growth of strategic alliances in the airline industry?," Working Papers 574, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Chun, So Yeon & Kleywegt, Anton & Shapiro, Alexander, 2013. "Resource Exchange Seller Alliances," MPRA Paper 49759, University Library of Munich, Germany.
  4. Bilotkach, Volodymyr & Hüschelrath, Kai, 2012. "Airline alliances and antitrust policy: The role of efficiencies," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 76-84.

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