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Strategic Alliances, Shared Facilities, and Entry Deterrence

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  • Zhinqi Chen
  • Thomas W. Ross

Abstract

We explore some possible anticompetitive effects of one particular type of strategic alliance--common in the airline industry, among others--that involves the sharing of production capacity. An offer to share an existing facility can allow an incumbent to persuade a potential entrant not to build its own facility. We establish conditions under which an agreement to share will be anticompetitive in the sense that, absent the agreement, a more competitive outcome (i.e., entry with new capacity) would have obtained. Such alliances can reduce welfare even if the incumbent and entrant will not be direct competitors.

Suggested Citation

  • Zhinqi Chen & Thomas W. Ross, 2000. "Strategic Alliances, Shared Facilities, and Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 326-344, Summer.
  • Handle: RePEc:rje:randje:v:31:y:2000:i:summer:p:326-344
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    Citations

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    Cited by:

    1. Nishide, Katsumasa & Tian, Yuan, 2011. "Compensation measures for alliance formation: A real options analysis," Economic Modelling, Elsevier, vol. 28(1), pages 219-228.
    2. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2015. "The effect of code-share agreements on the temporal profile of airline fares," Transportation Research Part A: Policy and Practice, Elsevier, vol. 79(C), pages 42-54.
    3. Ojah, Kalu, 2007. "Costs, valuation, and long-term operating effects of global strategic alliances," Review of Financial Economics, Elsevier, vol. 16(1), pages 69-90.
    4. Fang, Yiwei & Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2012. "Product market relationships and cost of bank loans: Evidence from strategic alliances," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 653-674.
    5. Zhang, Anming & Zhang, Yimin, 2006. "Rivalry between strategic alliances," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 287-301, March.
    6. J. Nolan & P. Ritchie & J. Rowcroft, 2001. "Open skies and open gates," Transportation, Springer, vol. 28(2), pages 119-135, May.
    7. repec:eee:ecotra:v:11-12:y:2017:i::p:33-48 is not listed on IDEAS
    8. Zhang, Anming, 2005. "Competition Models of Strategic Alliances," Research in Transportation Economics, Elsevier, vol. 13(1), pages 75-100, January.
    9. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 137-152.
    10. Eerola, Essi & Maattanen, Niku, 2004. "Strategic alliances, joint investments, and market structure," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 241-251, February.
    11. Chen, Zhiqi & Ross, Thomas W., 2003. "Cooperating upstream while competing downstream: a theory of input joint ventures," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 381-397, March.
    12. Goetz, Christopher F. & Shapiro, Adam Hale, 2012. "Strategic alliance as a response to the threat of entry: Evidence from airline codesharing," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 735-747.
    13. Achim I. Czerny & Peter-J. Jost & Benny Mantin, 2010. "Pricing in Overlapping Transport Networks," WHU Working Paper Series - Economics Group 10-05, WHU - Otto Beisheim School of Management.
    14. Felipe Balmaceda(University of Chile), Eduardo Saavedra(Georgetown University/Ilades), 2004. "Vertical Integration and Shared Facilities in Unregulated Industries," Working Papers gueconwpa~04-04-13, Georgetown University, Department of Economics.
    15. Lazzarini, Sergio G., 2002. "The Performance Implications of Membership in Competing Firm Constellations: Evidence from the Global Airline Industry," Insper Working Papers wpe_23, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    16. Gayle, Philip & Xie, Xin, 2017. "Entry Deterrence and Strategic Alliances," MPRA Paper 83233, University Library of Munich, Germany.
    17. Kim, Tae-Nyun & Palia, Darius, 2014. "Private equity alliances in mergers," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 10-20.
    18. Mathews, Richmond D., 2006. "Strategic alliances, equity stakes, and entry deterrence," Journal of Financial Economics, Elsevier, vol. 80(1), pages 35-79, April.
    19. Creane, Anthony & Konishi, Hideo, 2009. "The unilateral incentives for technology transfers: Predation (and deterrence) by proxy," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 379-389, May.
    20. Qiu, Larry D., 2010. "Cross-border mergers and strategic alliances," European Economic Review, Elsevier, vol. 54(6), pages 818-831, August.

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