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The effects of airline alliances: What do the aggregate data say?

  • Phillipe Gagnepain

    ()

  • Pedro L. Marín

We consider an empirical model of worldwide airline alliances that we apply to a large set of companies for the period 1995-2000. Using observations at the companies level, we estimate a cost, capacity, and demand system that accounts for cross-price elasticities. From the estimates, we shed light on the fact that many airlines involved in the same alliances are potential substitutes. We also test for the effects of alliances on airlines’ fares and suggest that airlines inside alliances cut prices by 5% on average compared to airlines outside alliances. Finally, we construct price-cost margins for each airlines and suggest that current pricing habits are not uniform and vary from one alliance to another.

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File URL: http://e-archivo.uc3m.es/bitstream/10016/5251/1/09-65-40.pdf
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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we096540.

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Date of creation: Apr 2009
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Handle: RePEc:cte:werepe:we096540
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  1. 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.
  2. 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 503-45, October.
  3. Gagnepain, Philippe & Marín Uribe, Pedro Luis, 2004. "Regulation and Incentives in European Aviation," CEPR Discussion Papers 4318, C.E.P.R. Discussion Papers.
  4. W. Whalen, 2007. "A panel data analysis of code-sharing, antitrust immunity, and open skies treaties in international aviation markets," Review of Industrial Organization, Springer, vol. 30(1), pages 39-61, February.
  5. Good, David H & Roller, Lars-Hendrik & Sickles, Robin C, 1993. "U.S. Airline Deregulation: Implications for European Transport," Economic Journal, Royal Economic Society, vol. 103(419), pages 1028-41, July.
  6. Neven, Damien J. & Roller, Lars-Hendrik, 1996. "Rent sharing in the European airline industry," European Economic Review, Elsevier, vol. 40(3-5), pages 933-940, April.
  7. Oum, Tae Hoon & Park, Jong-Hun, 1997. "Airline alliances: current status, policy issues, and future directions," Journal of Air Transport Management, Elsevier, vol. 3(3), pages 133-144.
  8. Lars-Hendrik Röller & Robin C. Sickles, 1997. "Capacity and Product Market Competition: Measuring Market Power in a "Puppy-Dog" Industry," CIG Working Papers FS IV 97-31, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  9. Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 2002. "Endogenous Costs and Price-Cost Margins," Discussion Papers of DIW Berlin 294, DIW Berlin, German Institute for Economic Research.
  10. 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.
  11. Marin, Pedro L., 1998. "Productivity differences in the airline industry: Partial deregulation versus short run protection," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 395-414, July.
  12. Jan K. Brueckner, 2003. "International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 105-118, February.
  13. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1475-1498, December.
  14. Jaumandreu, Jordi & Lorences, Joaquin, 2002. "Modelling price competition across many markets (An application to the Spanish loans market)," European Economic Review, Elsevier, vol. 46(1), pages 93-115, January.
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