Carrier collaboration with endogenous networks: Or, the limits of what carrier collaboration can achieve under antitrust immunity. (July 2021)

• Record Type: Journal Article
• Authors: Czerny, Achim I.; Jost, Peter-J.; Lang, Hao; Mantin, Benny
• Is Part Of: Journal of air transport management. Volume 94(2021)
• Publication Date: 2021-07
• Subjects: Carriers -- Networks -- Frequencies -- Double marginalization -- Antitrust immunity -- Service obligations; Airlines -- Management -- Periodicals; Aeronautics, Commercial -- Management -- Periodicals; 387.7068
• DOI: 10.1016/j.jairtraman.2021.102060
• Languages: English
• ISSNs: 0969-6997

Abstract

Abstract: Airlines maintain complex 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 network choices. The model involves a two-stage game with two carriers who choose their complementary networks in the first stage and fares in the second stage. Each carrier's network involves one or two links that are distributed geographically or distributed in time. If both carriers maintain two links, then transfer passengers can choose between two alternative connections which they consider as imperfect substitutes. There are only transfer passengers, and maintaining a link is costly. The analysis reveals that carrier collaboration and antitrust immunity can eliminate double marginalization and create incentives to extend networks. Our results indicate that the scope for the improvement of carrier networks via antritrust immunity can be rather limited relative to the social desirability of more extensive carrier networks. A possible policy lesson is that airlines should be granted antitrust immunity conditional on network expansion and/or frequency obligations. Highlights: The study captures pricing problems in terms of double marginalization and 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. The analysis reveals that antitrust immunity can create additional incentives to maintain two connections rather than one connection depending on the heterogeneity of connections. Analytical results indicate that the scope for the improvement of carrier networks via antitrust immunity can be rather limited.