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
- Spring '10
- Continental Airlines, Oneworld, Airline alliance, airline alliances