This suggests that some cost structure eg returns to

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Unformatted text preview: c density, 12 fixed costs and the like) should be introduced in the model if we searched for a theoretical explanation to some observed behaviour in the airline industry. Furthermore, part ii) of the above proposition can result in a prisoners' aa aa na dilemma situation, that is, 12 /2 (resp. 34 /2) can be lower than 1 (resp. na na aa 3 ). It is sufficient that d/b exceeds 0.52 to have that 1 > 12 /2, regardless of the values of and . 3 Direct Non-stop Competition. We wish to examine whether the previous results are modified in the presence of another carrier offering non-stop flights. Thus suppose that there is another airline, denoted 5, which provides direct service between cities A and B (see Figure 2). Symmetric demand functions are the following, Q12 = - b(p1 + p2 ) + d(p3 + p4 ) + ep5 Q34 = - b(p3 + p4 ) + d(p1 + p2 ) + ep5 Q5 = - bp5 + e(p1 + p2 + p3 + p4 ) where > 0, and b > d + e, because the products are gross substitutes. We will employ tildes to distinguish the different equilibrium...
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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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