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Unformatted text preview: e is profitable for values of the cross-effect below 0.66. 15 ~12 paa ~34 paa 1 - b( + ) + e + 2 = 2 2b + d 2b - bd - e2 ! 1 - b( + ) + e e( + ) + (2b - d) + 2 = ; paa = ~5 2 2 2b + d 2b - bd - e 2(2b2 - bd - e2 ) ! Equilibrium travel volumes and profits are obtained as above. We next present the analogous to proposition 2 above in the presence of competition from a non-stop carrier. Proposition 5 i) The fare paa is lower than pa + pa when airlines 1 and 2 ~34 ~3 ~4 ~12 ~12 form an alliance. Furthermore, paa is also lower than pa . 4b2 d2 + d4 ) + 8b(b + d)(-5b2 + bd + 2d2 )e2 + (17b2 + 24bd + 8d2 ))e4 > 0. Furthermore, profits of alliance between 1 and 2 decrease. ~5 ~5 iii) The fare paa is now lower than pa and so are profits to airline 5. The combination of propositions 4 and 5 imply that we may characterize the (subgame perfect) Nash equilibria of the simultaneous game of airline alliances above presented. As already argued, demand intercepts , and , do not play any role in determi...
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This note was uploaded on 05/12/2010 for the course MAN 6721 taught by Professor Kraft during the Spring '10 term at University of Florida.
- Spring '10