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On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?

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  • Philip G. Gayle

Abstract

Previous research has suggested that codeshare agreements eliminate double marginalization that exists when unaffiliated airlines independently determine the price for different segments of an interline trip. Using a structural econometric model, this paper investigates whether codeshare contracts do eliminate double marginalization. The results suggest that both upstream and downstream margins persist when the operating carrier of a codeshare product also offers competing single-carrier product(s) in the concerned market. Furthermore, counterfactual simulations from the model suggest that efficient pricing of these codeshare products would lower their price, and yield nontrivial increases in consumer welfare.

Suggested Citation

  • Philip G. Gayle, 2013. "On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 244-273, November.
    • Handle: RePEc:aea:aejmic:v:5:y:2013:i:4:p:244-73
    Note: DOI: 10.1257/mic.5.4.244
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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