434 iii no alliances and both alliances are

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Unformatted text preview: 472]. We conclude that our main result that alliances arise in equilibrium for sufficient product differentiation holds true, but needs some qualification. It must be noted that alliances will not occur for values of d and e far from each other. Hence, it suffices that competition with one competitor, either from connecting flights or from direct flights, be strong to make alliances unprofitable. Furthermore, the equilibrium in part ii) above can give rise to a prisoners' dilemma situation, that is, the setting without alliances may yield higher profits than the equilibrium with both alliances. 4 Concluding Remarks. The airline sector is characterized by its dynamism and transformation over the last decades. In the 1980s, all major carriers started to organize their networks in a hub-and-spoke manner and, at the beginning of the 1990s, a revolution shook the industry: the proliferation of airline alliances. International alliances were viewed as the key element for airlines to extend the...
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