Airline Network Competition with New Brand Subsidiaries

Ming Hsin Lin

19 citations0/0 files storedJournal of Transport Economics and Policy

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Aviation Industry Analysis and Trends Merger and Competition Analysis Transport and Economic Policies

Abstract

This paper investigates airline network competition where two (identical) hub carriers aim to establish new subsidiaries offering differentiated non-stop services on their rim-routes. Each of them may retain a hub or shift to a mix (or point-to-point) network cooperating with its subsidiary. We find that each chooses a mix (hub) network when passengers' product differentiation is large (small). We also find that one carrier chooses a hub and the other chooses a mix network when the differentiation is intermediate. Our welfare analysis shows that each network pair competition worsens welfare compared with a monopoly hub or mix network.

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References

1978A MODEL OF DUOPOLY SUGGESTING A THEORY OF ENTRY BARRIERS 1984Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ 1994Economies of Traffic Density in the Deregulated Airline Industry 2000The Price Effects of International Airline Alliances 2004Network Structure and Airline Scheduling 1995Airline Network Rivalry 1991Competition and mergers in airline networks 1995The Economics of Hubs: The Case of Monopoly

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