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The Price Effects of International Airline Alliances

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  • Brueckner, Jan K
  • Whalen, W Tom

Abstract

This paper provides evidence on the effect of international airline alliances on fares. The main finding is that alliance partners charge interline fares that are approximately 25 percent below those charged by nonallied carriers. According to our theoretical model, the main source of this fare reduction is the internalization of a negative externality that arises from the uncoordinated choice of interline "subfares" in the absence of an alliance. The paper also looks for evidence of an anti-competitive alliance effect in the gateway-to-gateway markets. While the point estimates show that an alliance between two previously competitive carriers would raise fares by about 5 percent, this effect is not statistically significant. Copyright 2000 by the University of Chicago.

Suggested Citation

  • Brueckner, Jan K & Whalen, W Tom, 2000. "The Price Effects of International Airline Alliances," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 503-545, October.
  • Handle: RePEc:ucp:jlawec:v:43:y:2000:i:2:p:503-45
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    File URL: http://dx.doi.org/10.1086/467464
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    References listed on IDEAS

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    1. Brueckner, Jan K. & Spiller, Pablo T., 1991. "Competition and mergers in airline networks," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 323-342, September.
    2. Ken Hendricks & Michele Piccione & Guofu Tan, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 83-99.
    3. Jong-Hun Park & Anming Zhang, 2000. "An Empirical Analysis of Global Airline Alliances: Cases in North Atlantic Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(4), pages 367-384, June.
    4. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
    5. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    6. Youssef, Waleed & Hansen, Mark, 1994. "Consequences of strategic alliances between international airlines: The case of Swissair and SAS," Transportation Research Part A: Policy and Practice, Elsevier, vol. 28(5), pages 415-431, September.
    7. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
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