Competition and coordination in the U.S. Airline hub-to-hub markets: an industry pre-merger case study
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hdl:2117/88805
Tipus de documentArticle
Data publicació2016-06
EditorOmnia Science
Condicions d'accésAccés obert
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continguts d'aquesta obra estan subjectes a la llicència de Creative Commons
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Reconeixement-NoComercial 3.0 Espanya
Abstract
Purpose: This paper investigates the nature of conduct that existed in the U.S. airline hub-to-hub
markets prior to the recent merger wave of the legacy carriers. We explore the strategic importance of
network carrier hubs in form of “spheres of influence” on airline market conduct. We also
simultaneously recognize the overgrowing role played by Low Cost Carriers (LCC) over the years by
estimating two conduct parameters - one in markets where LCCs directly compete head-to-head with
legacy carriers and the other for markets which LCCs do not serve but has presence in the hub airports
or adjacent airports comprising the market endpoints. Thus our supply side framework also sheds some
light on the issue of perfect contestability in airline industry.
Design/methodology: We estimate a structural oligopoly model for differentiated products with
competitive interactions using DB1B data for first quarter of 2004.
Findings: Our results imply that the nature of competition is more aggressive relative to Bertrand
behavior in hub-to-hub markets and that these markets are less than perfectly contestable.
Originality/value: This paper adds to the empirical literature of airline competition by enabling
estimation of the actual conduct parameter assuming firm price setting behavior in presence of product
differentiation. Contrary to existing literature on airline competition, a structural model enables us to
systematically separate out effects of demand, cost and strategic factors on observed airline prices.
CitacióBhattacharjee, Prasun. Competition and coordination in the U.S. Airline hub-to-hub markets: an industry pre-merger case study. "Journal of Airline and Airport Management", Juny 2016, vol. 6, núm. 1, p. 92-113.
ISSN2014-4806
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