Abstract
We consider an empirical model of worldwide airline alliances that we apply to a large set of companies for the period 1995–2000. Using observations at the network level, we estimate a cost, capacity, and demand system that accounts for cross-price elasticities. Our contribution consists in evaluating airlines’ strategical interactions through the window of firms’ network interconnections. We consider networks coincidences and potential connections with all their rivals. The results allow us to classify all company pairs as either complements or substitutes. We shed light on the fact that many airlines involved in the same alliance are potential substitutes.
Highlights
Using aggregate data at the airline level, we analyze worldwide airline alliances
We suggest that airlines inside alliances cut prices by 5% on average
We propose two main contributions: First, we test for the impact of the formation of alliances on airlines annual prices and costs
Summary
Using aggregate data at the airline level, we analyze worldwide airline alliances. We suggest that airlines inside alliances cut prices by 5% on average. Bamberger et al (2004) among others have investigated domestic alliances These authors suggest that, if the corresponding networks of the alliance members offer the possibility of connecting many routes, they can be regarded as complements. In this case, firms cooperate on routes that were not individually served before, but are created by connecting networks. If the corresponding networks of alliance members used to overlap for a large number of routes, they can be regarded as substitutes (parallel alliances) In this case, the firms share planes on routes that they both used to served individually.
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