IDEAS home Printed from https://ideas.repec.org/p/fth/lavaen/99-06.html
   My bibliography  Save this paper

Demand Uncertainty and Airline Network Morphology with Strategic Interactions

Author

Listed:
  • Barla, P.

Abstract

In this paper, we examine how strategic interactions affect airline network. We develop a three stage duopoly game: at stage 1 airlines determines their network structure (linear versus hub-and-spoke). At stage 2 they decide on their capacities, and at stage 3 firms compete in quantities. The main feature of the model is that firms have to decide on network structure and capacities while facing demand uncertainty. We show that while hubbing is efficient, airlines may choose a linear network for strategic reasons. Furthermore, we show that this structure softens competition by preventing contagion of competition across market

Suggested Citation

  • Barla, P., 1999. "Demand Uncertainty and Airline Network Morphology with Strategic Interactions," Papers 99-06, Laval - Recherche en Energie.
    • Handle: RePEc:fth:lavaen:99-06
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ken Hendricks & Michele Piccione & Guofu Tan, 1995. "The Economics of Hubs: The Case of Monopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 83-99.
    2. Severin Borenstein, 1992. "The Evolution of U.S. Airline Competition," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 45-73, Spring.
    3. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
    4. Robert W. Staiger & Frank A. Wolak, 1992. "Collusive Pricing with Capacity Constraints in the Presence of Demand Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 203-220, Summer.
    5. Brueckner, Jan K. & Spiller, Pablo T., 1991. "Competition and mergers in airline networks," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 323-342, September.
    6. Barla, Philippe & Constantatos, Christos, 1999. "The Role of Demand Uncertainty in Airline Network Structure," Cahiers de recherche 9903, Université Laval - Département d'économique.
    7. Tae Hoon Oum & Anming Zhang & Yimin Zhang, 1995. "Airline Network Rivalry," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 836-857, November.
    8. Encaoua, David & Moreaux, Michel & Perrot, Anne, 1996. "Compatibility and competition in airlines demand side network effects," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 701-726, October.
    9. Ken Hendricks & Michele Piccione & Guofu Tan, 1997. "Entry and Exit in Hub-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 291-303, Summer.
    10. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
    11. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sayed Ajaz Hussain & Serkan Bahceci, 2008. "Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation?," Working Papers tecipa-325, University of Toronto, Department of Economics.
    2. Ikumo Isono, 2011. "Economic Integration and the Expansion of Trade and Transport Networks," Chapters, in: Masahisa Fujita & Ikuo Kuroiwa & Satoru Kumagai (ed.), The Economics of East Asian Integration, chapter 13, Edward Elgar Publishing.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yetiskul, Emine & Matsushima, Kakuya & Kobayashi, Kiyoshi, 2005. "Airline Network Structure with Thick Market Externality," Research in Transportation Economics, Elsevier, vol. 13(1), pages 143-163, January.
    2. Anming Zhang & Yimin Zhang & Joseph A. Clougherty, 2011. "Competition and Regulation in Air Transport," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 35, Edward Elgar Publishing.
    3. Jan K. Brueckner, 2004. "Network Structure and Airline Scheduling," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 291-312, June.
    4. Christopher Mayer & Todd Sinai, "undated". "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why All Delays Are Not Evil," Zell/Lurie Center Working Papers 393, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    5. Jiang, Changmin & Zhang, Anming, 2014. "Effects of high-speed rail and airline cooperation under hub airport capacity constraint," Transportation Research Part B: Methodological, Elsevier, vol. 60(C), pages 33-49.
    6. 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.
    7. Clougherty, Joseph A., 2004. "Integrating Industrial Organization and International Business to Explain the Cross-National Domestic Airline Merger Phenomenon," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 19, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    8. Fu, Xiaowen & Jin, Huan & Liu, Shaoxuan & Oum, Tae H. & Yan, Jia, 2019. "Exploring network effects of point-to-point networks: An investigation of the spatial patterns of Southwest Airlines’ network," Transport Policy, Elsevier, vol. 76(C), pages 36-45.
    9. Gaggero, Alberto A. & Piazza, Giovanni, 2021. "Multilayer networks and route entry into the airline industry: Evidence from the U.S. domestic market," Research in Transportation Economics, Elsevier, vol. 90(C).
    10. Jia Yan & Xiaowen Fu & Tae Oum, 2008. "Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines," Working Papers 2008-21, School of Economic Sciences, Washington State University.
    11. Oh, Jaelynn & Huh, Woonghee Tim, 2022. "Hidden city travel and its impact on airfare: The case with competing airlines," Transportation Research Part B: Methodological, Elsevier, vol. 156(C), pages 101-109.
    12. Clougherty, Joseph A., 2002. "US domestic airline mergers: the neglected international determinants," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 557-576, April.
    13. Lin, Ming Hsin & Zhang, Anming, 2016. "Hub congestion pricing: Discriminatory passenger charges," Economics of Transportation, Elsevier, vol. 5(C), pages 37-48.
    14. Aguirregabiria, Victor & Ho, Chun-Yu, 2012. "A dynamic oligopoly game of the US airline industry: Estimation and policy experiments," Journal of Econometrics, Elsevier, vol. 168(1), pages 156-173.
    15. Lin, Ming Hsin, 2012. "Airlines-within-airlines strategies and existence of low-cost carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(3), pages 637-651.
    16. Wang, Chunan & Wang, Xiaoyu, 2019. "Airport congestion delays and airline networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 328-349.
    17. Joseph A. Clougherty & Anming Zhang, 2009. "Domestic rivalry and export performance: theory and evidence from international airline markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(2), pages 440-468, May.
    18. Mori, Tomoya & Nishikimi, Koji, 2002. "Economies of transport density and industrial agglomeration," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 167-200, March.
    19. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1074-1089, September.
    20. Hideki Murakami, 2005. "Strategic Alliance versus Competition: Airlines' Choices and their Impact on Economic Welfare," Discussion Papers 2005-37, Kobe University, Graduate School of Business Administration.

    More about this item

    Keywords

    AIRLINES ; COMPETITION ; NETWORK ; UNCERTAINTY;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:lavaen:99-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/grlvlca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.