A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence

Victor Aguirregabiria () and Chun-Yu Ho ()

Working Papers from University of Toronto, Department of Economics

Abstract: In a hub-and-spoke network, the total profit function of an airline is supermodular with respect to its entry decisions at different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy to deter entry of competitors. This paper presents a dynamic game of airlines network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with particular attention to empirical evidence on the entry deterrence motive.

Keywords: Airline networks; Hub-and-spoke; Entry deterrence; Dynamic games; Supermodularity (search for similar items in EconPapers)
JEL-codes: C73 L13 L41 L93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic, nep-net and nep-ure
Date: Written

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