Did the Entry of Low Cost Companies Foster the Growth of Strategic Alliances in the Airline Industry?

Andrea Mantovani and Ornella Tarola

Rivista di Politica Economica, 2007, vol. 97, issue 1, 189-220

Abstract: We adopt a vertical differentiation model to study the effect of deregulation in the airline industry. In particular, we show that traditional carriers form international alliances on hub-and-spoke networks to compete against low cost companies, which successfully serve short haul routes at relatively cheap prices. The alliance is profitable if the gain in terms of economies of density is sufficiently high and consumers’ utility is not significantly decreased by the indirect connection. Social welfare is also evaluated: we find interval regions where the alliance is welfare enhancing, even if it is not convenient for existing flag carriers.

JEL-codes: L29 L93 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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Working Paper: Did the entry of low cost companies foster the growth of strategic alliances in the airline industry? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:97:y:2007:i:1:p:189-220

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