Tuesday, February 3, 2009
Readers interested in the regulatory ramifications of airline alliances will want to peruse Prof. Philip G. Gayle's recently published study, An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance, 51 J.L. & Econ. 743 (2008). Gayle, an Associate Professor in the Department of Economics at Kansas State University, has found that the three-way alliance--which received approval from the U.S. Department of Transportation in 2003--did not appear to facilitate collusion on price or traffic levels in the carriers' overlapping markets. This conclusion, the result of an aggregated analysis of both traditional and virtual code-sharing, goes some distance in vindicating the DOT's decision to approve the alliance despite the fact it involved an unprecedented number of overlapping routes. (The DOT's Termination of Review Notice is available at 68 Fed. Reg. 16,854.) Prof. Gayle's previous work in this area, Airline Code-Share Alliances and Their Competitive Effects, 50 J.L. & Econ. 781 (2007), suggested a structural econometric model to quantify the competitive effects of proposed code-share alliances which, if applied by the DOT, could allow the agency to make a more informed decision when weighing potential consumer benefits against the possibility of price increases.