We compare aviation markets under conditions of competition, codesharing contracts and anti-trust immune alliances, assuming that demand for flights depends on both fares and the level of frequency offered. Using a hybrid competitive/cooperative game theoretic framework, we show that the stronger the inter-airline agreement on overlapping routes, the higher the producer surplus. On the other hand, consumer surplus and overall social welfare are maximized under limited codesharing agreements. Partial mergers appear preferable to no agreement in 'thin' markets, in which both demand and profit margins are relatively low. Inter-governmental agreements are also analyzed and we show that bilaterals create the least favorable market outcomes for consumers and producers. Finally, a realistic case study demonstrates that under asymmetric and uncertain demand, codesharing on parallel links may be preferable to competitive outcomes for multiple consumer types.
Bibliographical noteFunding Information:
We thank Guy Arie, Cristina Barbot, Jan Brueckner, Martin Dresner, Xiaowen Fu, Yigal Gerchak, David Gillen, Igal Hendel, Peter Klibanoff, Benny Mantin and Michael Whinston for helpful comments and discussion. We also thank audiences at Hong Kong Polytechnic University, Northwestern University, University of British Columbia, University of Tokyo and University of Bergamo, and at ATRS ’08, IFPSA ’08, INFORMS ’09, ORSIS ’09 and ORSIS ’13. Finally, we wish to thank the editor and three anonymous referees for their frank and useful comments to help us improve the exposition. This research was partially supported by grant no. 1029/09 from the Israel Science Foundation (ISF) and by the Recanati Foundation.
© 2015 Elsevier Ltd.
- Anti-trust regulation
- Codesharing agreements
- Competition and contracts