Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, November 19, 2009

A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence

Posted by D. Daniel Sokol

Victor Aguirregabiria (Toronto - Econ) and Chun-Yu Ho (Georgia Tech - Econ) address A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence.

ABSTRACT: In a hub-and-spoke network, the total profit function of an airline is supermodular with respect to its entry decisions at different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy to deter entry of competitors. This paper presents a dynamic game of airlines network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with particular attention to empirical evidence on the entry deterrence motive.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/11/a-dynamic-game-of-airline-network-competition-hubandspoke-networks-and-entry-deterrence.html

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