Network Structure and Entry in the Deregulated Airline Industry

Joseph Berechman, Sougata Poddar () and Oz Shy
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Joseph Berechman: Department of Public Policy and The Eitan Berglas School of Economics, Tel Aviv University, Israel

No 1994064, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper, we explore how an incumbent airline firm structures its route network under the threat of entry caused by deregulation. We show that entry induces the incumbent firm to strategically alter its flight operating network structure from a fully connected network (FC) to a hub-and-spoke network (HS). While the literature always assumed that the use of a HS network is primarily for the purpose of cost reduction, we show that HS can be used as an entry deterrence/accommodation mechanism even in .cases where the HS is more costly to operate. We further analyze the effects of aircraft capacity on the strategic behavior of an airline firm.

Date: 1994-12-01
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Related works:
Working Paper: Network Structure and Entry, in the Deregulated Airline Industry (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1994064

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