Airline Code-Share Alliances and Their Competitive Effects
Code-share alliances have become a prominent feature in the competitive landscape of the airline industry. However, policy makers are extremely hesitant to approve proposed code-share alliances when the potential partnersâ€™ route networks have significant overlap. The main concern is that an alliance may facilitate price collusion on partnersâ€™ overlapping routes. This article shows how policy makers can use a structural econometric framework to quantify the competitive effects of proposed code-share alliances, where potential alliance partners compete on overlapping routes in the prealliance industry. As an example, I apply the econometric model to the Delta/Continental/Northwest alliance. This proposed alliance was initially greeted with skepticism by the U.S. Department of Transportation owing to the potential partnersâ€™ unprecedented level of route network overlap. For the markets considered in my analyses, it appears as though the ultimate approval of the alliance by policy makers was justified.
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