STRATEGIC EFFECTS OF AIRLINE ALLIANCES

Rafael Moner Colonques () and Ricardo Flores Fillol
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Rafael Moner Colonques: Universitat de València
Ricardo Flores Fillol: Universidad Autónoma de Barcelona

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: 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 to hurt outsiders and thatfares decrease in the interline market. Contrary to what might be expected, wefind that complementary alliances are not always profitable, even in thepresence of economies of traffic density. The interplay between market size, thedegree of product differentiation and the intensity of economies of trafficdensity determines whether the market equilibrium entails no alliances, a singlealliance or a double alliance.

Keywords: complementary airline alliances; economies of traffic density; product differentiation (search for similar items in EconPapers)
JEL-codes: L13 L2 L93 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-06
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2006-06

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