A Framework for Modeling "Real-Life" Airline Networks
This paper develops a new model, which allows for the co-existence of hub-and-spoke and point-to-point networks in the airline industry. Passengers are segmented between the non-stop and one-stop services. In the baseline model, the monopoly airlines ability to segment the market and effectively set up the mixed network depends on the cost savings due to the through-hub service relative to exogenous quality difference between the one-stop and non-stop flights. Socially inefficient entry with the new non-stop service where an incumbent is operating the hub-and-spoke network is possible.
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Volume (Year): 8 (2009)
Issue (Month): 3 (September)
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