Strategic Alliances, Shared Facilities, and Entry Deterrence

Zhiqi Chen and Thomas Ross

RAND Journal of Economics, 2000, vol. 31, issue 2, 326-344

Abstract: We explore some possible anticompetitive effects of one particular type of strategic alliance--common in the airline industry, among others--that involves the sharing of production capacity. An offer to share an existing facility can allow an incumbent to persuade a potential entrant not to build its own facility. We establish conditions under which an agreement to share will be anticompetitive in the sense that, absent the agreement, a more competitive outcome (i.e., entry with new capacity) would have obtained. Such alliances can reduce welfare even if the incumbent and entrant will not be direct competitors.

Date: 2000
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