They suggest that a merger of a subset s n of the

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: merger of a subset s n of the firms may be unprofitable to the parties. Such a conclusion remains true, as we have just seen, in the presence of substitute products or systems (two possible trips) where each system is composed of two complementary components (interline flights). 2.2 Is an alliance between airlines 3 and 4 a best response to an alliance between airlines 1 and 2? This subsection addresses whether it is always strategically optimal for the airlines outside the alliance to cooperate in setting the fare, p34 , for flight through hub K. Demands are now Q12 = - bp12 + dp34 and Q34 = - bp34 + dp12 . Superscripts aa stand for the case where both alliances occur. The corresponding equilibrium prices are given by, paa = 12 2b + d ; 4b2 - d2 paa = 34 2b + d 4b2 - d2 9 which yield the following travel volumes and profits, Qaa = 12 aa 12 b (2b + d) = bpaa ; 12 2 - d2 4b Qaa = 34 aa 34 b (2b + d) = bpaa 34 2 - d2 4b b (2b + d)2 = = b (paa )2 ; 12 2 - d2 )2 (4b CS aa = Comparison with the equilibrium variables in the previous subsection leads to the next result.7 Proposition 2 i) The fare paa is...
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