Wednesday, September 30, 2020

Carrier Collaboration with Endogenous Networks: Or, the Limits of What Carrier Collaboration Can Achieve Under Antitrust Immunity

Carrier Collaboration with Endogenous Networks: Or, the Limits of What Carrier Collaboration Can Achieve Under Antitrust Immunity

Achim I. Czerny

Hong Kong Polytechnic University - Faculty of Business

Peter J. Jost

WHU - Otto Beisheim School of Management - Chair of Theory of Organization

Hao Lang

Hong Kong Polytechnic University - Faculty of Business

Benny Mantin

Luxembourg Centre for Logistics and Supply Chain Management (LCL)

Abstract

Airlines provide complex route networks that are to large extents complementary. Therefore, some passengers need to change aircraft and airlines to fly from their origin to their final destination. The present study captures pricing problems in terms of double marginalization but goes one step further by incorporating scheduling problems in the form of route developments and/or frequency choices. The model involves a two-stage game with two carriers who choose their complementary networks in the first stage and prices in the second stage. Each carrier's network involves one or two routes that are distributed geographically or distributed in time. If both carriers maintain two routes, then transfer passengers can choose between two alternative connections which they consider as imperfect substitutes. There are only transfer passengers, and maintaining a route is costly. The analysis reveals that carrier collaboration and antitrust immunity can eliminate double marginalization and create additional incentives to maintain two connections rather than one connection depending on the heterogeneity of connections. Our results indicate that the scope for the improvement of carrier networks via antitrust immunity can be rather limited relative to the social desirability of more complete carrier networks. A possible policy lesson is that airlines should be granted antitrust immunity conditional on network expansion.

https://lawprofessors.typepad.com/antitrustprof_blog/2020/09/carrier-collaboration-with-endogenous-networks-or-the-limits-of-what-carrier-collaboration-can-achie.html

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