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A dynamic game of airline network competition: Hub-and-spoke networks and entry deterrence

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  • Aguirregabiria, Victor
  • Ho, Chun-Yu

Abstract

In a hub-and-spoke network, the profit function of an airline is supermodular with respect to the airline's own entry decisions for different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy for deterring the entry of competitors. This paper presents an empirical dynamic game of airline 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 special attention to empirical evidence regarding the entry deterrence motive.

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  • Aguirregabiria, Victor & Ho, Chun-Yu, 2010. "A dynamic game of airline network competition: Hub-and-spoke networks and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 377-382, July.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:4:p:377-382
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    More about this item

    Keywords

    Dynamic games Airline networks Hub-and-spoke Entry deterrence Supermodularity;

    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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