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Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines

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Author Info
Jia Yan
Xiaowen Fu
Tae Oum () (School of Economic Sciences, Washington State University)
Abstract

This paper explores network effects in Point-to-Point airline networks by examining the spatial entry patterns of Southwest airlines during the 1990-2006 period. Estimation results from a spatial probit model reveal clear spatial dependence in profitability across different routes served by the carrier. Detailed investigation suggests two main sources of network effects, namely: (1) airport and regional presence, and (2) substitutability of markets. Findings of the paper suggest also that the network effects embedded in Southwest’s Point-to-Point network have many distinguishing features as compared to those identified in a typical Hub-and-Spoke network. This study brings some fresh insights on airline network effects in general, as well as explaining the pattern of aggressive network expansions of LCCs in particular.

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File URL: http://www.ses.wsu.edu/PDFFiles/WorkingPapers/Yan/Yan_Fu_Oum_Nov.pdf
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File Function: First version, 2008
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Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2008-21.

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Length: 37 pages
Date of creation: Nov 2008
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Handle: RePEc:wsu:wpaper:yan-3

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Keywords: Point-to-Point Networks; spatial entry patterns; Southwest airlines; spatial probit model;

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  7. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 83-99, January. [Downloadable!] (restricted)
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  8. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law & Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
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