We examine whether airlines that employ the same hub

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Unformatted text preview: xamine whether airlines that employ the same hub have an incentive to create an alliance, analyze the effects on carriers outside the alliance and study how fares are affected. We conclude that complementary alliances are profitable for a sufficient degree of product differentiation, which implies that competition intensity is low; that an alliance hurts the outsiders; and that fares will decrease. These findings remain valid to the introduction of more competition in the form of a direct non-stop flight. Our results provide a very simple testable implication that relies on demand parameters that measure the degree of product differentiation, and our findings are consistent with some of the observed facts in the industry. Keywords: complementary airline alliances, substitute trips, product differentiation. 1 Introduction The air transportation sector has witnessed a number of changes since the deregulation processes of the US industry (in the 1980s) and of the European industry (in the 1990s). These c...
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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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