An Empirical Investigation of the Competitive Effects of Domestic Airline Alliances
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.
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