It becomes negative for sufficiently large values of

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Unformatted text preview: e equal, or for high values of d (low e) and low values of e (high d). It is easy to check that as e 0, the condition in proposition 1 part ii) is recovered. Hence, the intuition is that the alliance between airlines 1 and 2 is profitable as long as there is enough product differentiation. Just note that the fact that there is now more competition in the market because there is another carrier makes the condition on "enough" product differentiation milder.10 iii) The fares set by airlines 3, 4 and 5 are lower and so are their equilibrium We now characterize the equilibrium when both alliances occur to identify whether airlines 3 and 4 find it strategically optimal to cooperate in setting the fare p34 this meaning there will be three competitors offering flights between cities A and B. The equilibrium prices are given by, 10 For example, take b = 1. The polynomial is positive for d = e = 0.4 so that 1 > 0.8 and the alliance is profitable. In proposition 1 above, the allianc...
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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.

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