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Airline Alliances, Carve-Outs and Collusion

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  • Jan K. Brueckner
  • Pierre M. Picard

Abstract

In this paper, we ask how antitrust immunity subject to a carve-out affects collusion incentives in international airline alliances. We show that the gains from economies of density due to higher interline traffic under the alliance strengthen the incentive to collude on the interhub segment, while the accompanying revenue gain heightens the incentive to defect from collusive behavior. These two effects exactly cancel in the case of linear demands and linear economies of density. Under this approximation, the incentives for interhub collusion are no different before and after the emergence of an airline alliance subject to a carve-out.

Suggested Citation

  • Jan K. Brueckner & Pierre M. Picard, 2011. "Airline Alliances, Carve-Outs and Collusion," CESifo Working Paper Series 3593, CESifo.
    • Handle: RePEc:ces:ceswps:_3593
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    Cited by:

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    3. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "On the problem of network monopoly," Theory and Decision, Springer, vol. 73(2), pages 223-248, August.
    4. Ciliberto, Federico & Watkins, Eddie & Williams, Jonathan W., 2019. "Collusive pricing patterns in the US airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 136-157.

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    More about this item

    Keywords

    collusion; carve-out;

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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