Market structure and quality determination for complementary products: Alliances and service quality in the airline industry

Jan Brueckner and Ricardo Flores-Fillol

International Journal of Industrial Organization, 2020, vol. 68, issue C

Abstract: This paper explores the effect of market structure on quality determination for complementary products. The focus is on the airline industry and the effect of airline alliances on flight frequency, an important element of service quality. With zero layover cost, the choice of flight frequencies has the same double-marginalization structure as in the usual alliance model, leading to a higher frequency in the alliance case as double marginalization is eliminated, along with a lower full trip price and higher traffic. The surprising result of the paper emerges with high-cost layover time, where double marginalization in frequencies is absent and where an alliance reduces service quality via a lower frequency, with the full price potentially rising (in which case traffic falls).

Keywords: Service quality; Alliance; Double marginalization; Congestion (search for similar items in EconPapers)
JEL-codes: D43 L13 L40 L93 R4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:68:y:2020:i:c:s0167718719300852

DOI: 10.1016/j.ijindorg.2019.102557

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