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A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence

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Author Info
Victor Aguirregabiria
Chun-Yu Ho

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Abstract

In a hub-and-spoke network, the total profit function of an airline is supermodular with respect to its entry decisions at different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy to deter entry of competitors. This paper presents a dynamic game of airlines network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with particular attention to empirical evidence on the entry deterrence motive.

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File URL: http://repec.economics.utoronto.ca/files/tecipa-379.pdf
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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-379.

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Length: 14 pages
Date of creation: 28 Oct 2009
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-379

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Related research
Keywords: Airline networks; Hub-and-spoke; Entry deterrence; Dynamic games; Supermodularity;

Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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This page was last updated on 2009-11-21.

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