Thursday, July 30, 2009

Immunized Alliances and the Market

Readers of the blog interested in the economic analysis of immunized airline alliances and their impact on the aviation market would do well to read W. Tom Whalen's A Panel Data Analysis of Code-Sharing, Antitrust Immunity, and Open Skies Treaties in International Aviation Markets, 30 Rev. Indus. Org. 39 (2007).  As the abstract reads:

This paper estimates the effects of code-sharing, antitrust immunity, and Open Skies treaties on prices, output, and capacity using an eleven-year panel of U.S.-Europe data. Code-sharing and immunized alliances are found to have significantly lower prices than does traditional interline (multi-carrier) service, but the effects are smaller in magnitude than those found in previous results that rely on cross-sectional data. Statistical tests that prices for immunized alliance service are equal to online (single carrier) service often cannot be rejected, providing additional evidence that immunity grants allow immunized carriers to internalize a double marginalization problem. Estimated output effects, consistent with the price effects, show that alliances are associated with large increases in passenger volumes. Lastly, estimates suggest that capacity expansions associated with “Open Skies” treaties are due entirely to expansion by immunized carriers on routes between their hubs.

A list of further readings on alliances and antitrust immunity is available in an earlier post here.

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