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Strategic Effects Of Airline Alliances

Author

Listed:
  • Rafael Moner Colonques

    (Universitat de València)

  • Ricardo Flores Fillol

    (Universidad Autónoma de Barcelona)

Abstract

This paper looks at the endogenous formation of airline alliances bymeans of a two-stage game where first airlines decide whether to form analliance and then fares are determined. We analyze the profitability and thestrategic effects of airline alliances when two complementary alliances,following different paths, may be formed to serve a certain city-pair market.The formation of a complementary alliance is shown to hurt outsiders and thatfares decrease in the interline market. Contrary to what might be expected, wefind that complementary alliances are not always profitable, even in thepresence of economies of traffic density. The interplay between market size, thedegree of product differentiation and the intensity of economies of trafficdensity determines whether the market equilibrium entails no alliances, a singlealliance or a double alliance.

Suggested Citation

  • Rafael Moner Colonques & Ricardo Flores Fillol, 2006. "Strategic Effects Of Airline Alliances," Working Papers. Serie AD 2006-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2006-06
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    complementary airline alliances; economies of traffic density; product differentiation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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