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Alliances in the Air: Some Worldwide Evidence

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  • Gagnepain, Philippe
  • Marín, Pedro L. [marin]

Abstract

We consider an empirical model of worldwide airlines’ alliances that we apply to a large set of companies for the period 1995-2000, with special attention to US and EU carriers. From the estimation of a cost, capacity and demand system that accounts for cross-price elasticities, we attempt to shed light on several interesting issues: First, we analyse whether alliance members’ networks are complements or substitutes. Second, we construct price-cost margins and test several hypothesis of non-cooperative behaviour such as individual Nash and joint price setting within the alliance. We suggest that current alliances' pricing habits are not uniform and range from individual Nash to more competitive behaviours.

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Paper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/5045.

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Handle: RePEc:ner:carlos:info:hdl:10016/5045

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Web page: http://www.uc3m.es

Related research

Keywords: airlines; alliances; gross-price elasticities; Nash behaviour;

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  1. Gagnepain, Philippe & Marín, Pedro L., . "Regulation and Incentives in European Aviation," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/5032, Universidad Carlos III de Madrid.
  2. Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 2002. "Endogenous Costs and Price-Cost Margins," Discussion Papers of DIW Berlin 294, DIW Berlin, German Institute for Economic Research.
  3. Marin, Pedro L., 1998. "Productivity differences in the airline industry: Partial deregulation versus short run protection," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 395-414, July.
  4. Lars-Hendrik Röller & Robin C. Sickles, 1997. "Capacity and Product Market Competition: Measuring Market Power in a "Puppy-Dog" Industry," CIG Working Papers FS IV 97-31, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  5. Jaumandreu, Jordi & Lorences, Joaquin, 2002. "Modelling price competition across many markets (An application to the Spanish loans market)," European Economic Review, Elsevier, vol. 46(1), pages 93-115, January.
  6. 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.
  7. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
  8. Zhinqi Chen & Thomas W. Ross, 2000. "Strategic Alliances, Shared Facilities, and Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 326-344, Summer.
  9. Neven, Damien J. & Roller, Lars-Hendrik, 1996. "Rent sharing in the European airline industry," European Economic Review, Elsevier, vol. 40(3-5), pages 933-940, April.
  10. Marin, Pedro L, 1995. "Competition in European Aviation: Pricing Policy and Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 141-59, June.
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