Regulating inter-firm agreements: The case of airline codesharing in parallel networks

Nicole Adler, Eran Hanany*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

19 Scopus citations

Abstract

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.

Original languageAmerican English
Pages (from-to)31-54
Number of pages24
JournalTransportation Research Part B: Methodological
Volume84
DOIs
StatePublished - 1 Feb 2016

Bibliographical note

Publisher Copyright:
© 2015 Elsevier Ltd.

Keywords

  • Anti-trust regulation
  • Codesharing agreements
  • Competition and contracts

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