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Equilibria in Networks

  • Ken Hendricks
  • Michele Piccione
  • Guofu Tan

We study a model in which two carriers choose networks to connect cities and compete for customers. We show that if carriers compete aggressively (e.g., Bertrand-like behavior), one carrier operating a single hub-spoke network is an equilibrium outcome. Competing hub-spoke networks are not an equilibrium outcome, although duopoly equilibria in non-hub networks can exist. If carriers do not compete aggressively, a duopoly equilibrium in hubs always exists if the number of cities is not small. We provide conditions under which all equilibria consist of hub-spoke networks.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 67 (1999)
Issue (Month): 6 (November)
Pages: 1407-1434

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Handle: RePEc:ecm:emetrp:v:67:y:1999:i:6:p:1407-1434
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