8 and the alliance is profitable in proposition 1

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

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.

Ask a homework question - tutors are online