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An Empirical Investigation of the Competitive Effects of Domestic Airline Alliances

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  • Bamberger, Gustavo E
  • Carlton, Dennis W
  • Neumann, Lynette R

Abstract

In this paper, we investigate empirically the effect of two domestic airline alliances. We find that both alliances benefited consumers--average fares fell by about 5-7 percent after the creation of the alliances on those city pairs affected by the alliances; we find that total traffic increased 6 percent after the creation of at least one of the alliances. We also find that the average fare and traffic effects arise in part because the alliance partners' rivals respond to the increased competition from an alliance. Finally, we find that the size of the alliance effect on average fares depends on the prealliance level of competition on a city pair, with the effect being larger on those city pairs where the level of competition was initially relatively low.

Suggested Citation

  • Bamberger, Gustavo E & Carlton, Dennis W & Neumann, Lynette R, 2004. "An Empirical Investigation of the Competitive Effects of Domestic Airline Alliances," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 195-222, April.
  • Handle: RePEc:ucp:jlawec:y:2004:v:47:i:1:p:195-222
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    File URL: http://dx.doi.org/10.1086/386274
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    1. Park, Jong-Hun, 1997. "The effects of airline alliances on markets and economic welfare," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(3), pages 181-195, September.
    2. Evans, William N & Froeb, Luke M & Werden, Gregory J, 1993. "Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 431-438, December.
    3. Dennis W. Carlton & William M. Landes & Richard A. Posner, 1980. "Benefits and Costs of Airline Mergers: A Case Study," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 65-83, Spring.
    4. William N. Evans & Ioannis N. Kessides, 1994. "Living by the "Golden Rule": Multimarket Contact in the U. S. Airline Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 341-366.
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