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Network effects, heterogeneous time value and network formation in the airline market

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  • Kawasaki, Akio

Abstract

This study examines an airline firm's adoption of a hub-spoke network or a point-to-point network when considering network effects from the demand side and the heterogeneity of passengers' time value. The results of this study reveal the following: If the time value for leisure passengers is sufficiently small and the operating cost is medium or when the time value for leisure passengers is high and operating cost is small, the monopoly airline adopts a hub-spoke network. Otherwise, a point-to-point network is adopted. Moreover, even when the airline chooses a point-to-point network, business passengers might move via another city according to second-degree price discrimination.

Suggested Citation

  • Kawasaki, Akio, 2008. "Network effects, heterogeneous time value and network formation in the airline market," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 388-403, July.
  • Handle: RePEc:eee:regeco:v:38:y:2008:i:4:p:388-403
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    Cited by:

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    2. Tiziana D'Alfonso & Changmin Jiang & Valentina Bracaglia, 2015. "Air transport and high-speed rail competition: environmental implications and mitigation strategies," DIAG Technical Reports 2015-15, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    3. Lin, Ming Hsin & Zhang, Anming, 2016. "Hub congestion pricing: Discriminatory passenger charges," Economics of Transportation, Elsevier, vol. 5(C), pages 37-48.
    4. Teraji, Yusuke & Morimoto, Yu, 2014. "Price competition of airports and its effect on the airline network," Economics of Transportation, Elsevier, vol. 3(1), pages 45-57.
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    9. M. Nenem & E. Ozkan-Gunay, 2012. "Determining Hub Efficiency in Europe, the Middle East, and North Africa: The Impact of Geographical Positioning," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 2(2), pages 37-53, December.
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    12. Flores-Fillol, Ricardo, 2009. "Airline competition and network structure," Transportation Research Part B: Methodological, Elsevier, vol. 43(10), pages 966-983, December.
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