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Unformatted text preview: sume that every alliance enjoys antitrust immunity, which allows the partners to collaborate in pricing decisions. Thus, we will suppose that cooperation is full, which implies that the alliance will behave as a single carrier in the market for which it is formed at the eyes of the passengers. Specifically, the aim of our paper is to analyze the profitability and the strategic effects of airline alliances in a simple setting in which two complementary alliances, following different paths, may be formed to serve a certain city-pair market. We wish to answer the following questions: when are alliances profitable for the potential partners?, what are the "collateral effects" of an alliance for the outsiders? what is the outsiders' optimal response? and how are fares affected? We conclude that complementary alliances are profitable for a sufficient degree of product differentiation; 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. T...
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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.
- Spring '10