Regulating inter-firm agreements: The case of airline codesharing in parallel networks (original) (raw)

On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?

American Economic Journal: Microeconomics, 2013

Previous research has suggested that codeshare agreements eliminate double marginalization that exists when unaffiliated airlines independently determine the price for different segments of an interline trip. Using a structural econometric model, this paper investigates whether codeshare contracts do eliminate double marginalization. The results suggest that both upstream and downstream margins persist when the operating carrier of a codeshare product also offers competing single-carrier product(s) in the concerned market. Furthermore, counterfactual simulations from the model suggest that efficient pricing of these codeshare products would lower their price, and yield nontrivial increases in consumer welfare. (JEL D86, L13, L14, L93)

Revenue Sharing in Airline Alliances

Management Science, 2013

We propose a two-stage game-theoretic approach to study the operations of an airline alliance in which independent carriers, managing different reservation and information systems, can collaboratively market and operate codeshare and interline itineraries. In the first-stage game, airlines negotiate fixed proration rates to share the revenues generated by such itineraries. In the second-stage game, airlines operate independent inventory control systems to maximize their own expected revenues. We derive a revenue-sharing rule that is (i) an admissible outcome of the first-stage negotiation, in the sense that no airline coalition has enough incentives to secede from the grand alliance, and (ii) efficient for the second-stage game, in the sense that the decentralized system can achieve the same revenues as a central planner managing the global alliance network. Our numerical study shows that the proposed proration rates can lead to a significant increase in revenues with respect to oth...

Strategic Formation of Airline Alliances

Journal of Transport Economics and Policy, 2007

This paper looks at the endogenous formation of airline alliances by means of a two-stage game where first airlines decide whether to form an alliance and then fares are determined. The authors analyse the effects and the strategic formation of airline alliances when two complementary alliances, following different paths, may be formed to serve a certain city-pair market. Alliances hurt rivals and decrease interline fares. Most interestingly, and contrary to what might be expected, the formation of alliances may be unprofitable in a competitive context. This is likely to happen when competition is significant and economies of traffic density are low. © 2007 LSE and the University of Bath

Strategic Effects of Airline Alliances

2006

This paper looks at the endogenous formation of airline alliances bymeans of a two-stage game where first airlines decide whether to form analliance and then fares are determined. We analyze the profitability and thestrategic effects of airline alliances when two complementary alliances,following different paths, may be formed to serve a certain city-pair market.The formation of a complementary alliance is shown

Hub-and-spoke network alliances and mergers: Price-location competition in the airline industry

This paper presents a framework to analyze global alliances and mergers in the airline industry under competition. The framework can help airlines identify partners and network structures, and help governments predict changes in social wel- fare before accepting or rejecting proposed mergers or alliances. The research combines profit-maximizing objectives to cost-based network design formulations within a game theoretic framework. The resulting analysis enables merging air- lines to choose appropriate international hubs for their integrated network based on their own and their competitors’ costs and revenues in the form of best response functions. The results of an illustrative example suggest that some mergers may be more successful than others and optimal international gateway choices change according to the number of competitors remaining in the market. Furthermore, although the pressure on airlines would suggest a strong preference for mergers or alliances, perhaps surprisingly, the solution outcomes whereby all airlines merge or ally are not equilibria in the overall game.