Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study
Purpose: This paper investigates the nature of conduct that existed in the U.S. airline hub-to-hub markets prior to the recent merger wave of the legacy carriers. We explore the strategic importance of network carrier hubs in form of “spheres of influence” on airline market conduct. We also simultan...
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| Format: | Article |
| Language: | English |
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OmniaScience
2016-04-01
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| Series: | Journal of Airline and Airport Management |
| Subjects: | |
| Online Access: | http://www.jairm.org/index.php/jairm/article/view/50 |
| _version_ | 1817994139252293632 |
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| author | Prasun Bhattacharjee |
| author_facet | Prasun Bhattacharjee |
| author_sort | Prasun Bhattacharjee |
| collection | DOAJ |
| description | Purpose: This paper investigates the nature of conduct that existed in the U.S. airline hub-to-hub markets prior to the recent merger wave of the legacy carriers. We explore the strategic importance of network carrier hubs in form of “spheres of influence” on airline market conduct. We also simultaneously recognize the overgrowing role played by Low Cost Carriers (LCC) over the years by estimating two conduct parameters - one in markets where LCCs directly compete head-to-head with legacy carriers and the other for markets which LCCs do not serve but has presence in the hub airports or adjacent airports comprising the market endpoints. Thus our supply side framework also sheds some light on the issue of perfect contestability in airline industry.
Design/methodology/approach: We estimate a structural oligopoly model for differentiated products with competitive interactions using DB1B data for first quarter of 2004.
Findings: Our results imply that the nature of competition is more aggressive relative to Bertrand behavior in hub-to-hub markets and that these markets are less than perfectly contestable.
Originality/value: This paper adds to the empirical literature of airline competition by enabling estimation of the actual conduct parameter assuming firm price setting behavior in presence of product differentiation. Contrary to existing literature on airline competition, a structural model enables us to systematically separate out effects of demand, cost and strategic factors on observed airline prices. |
| first_indexed | 2024-04-14T01:47:56Z |
| format | Article |
| id | doaj.art-a6919645511f47f787a7760bb7964e5c |
| institution | Directory Open Access Journal |
| issn | 2014-4865 2014-4806 |
| language | English |
| last_indexed | 2024-04-14T01:47:56Z |
| publishDate | 2016-04-01 |
| publisher | OmniaScience |
| record_format | Article |
| series | Journal of Airline and Airport Management |
| spelling | doaj.art-a6919645511f47f787a7760bb7964e5c2022-12-22T02:19:27ZengOmniaScienceJournal of Airline and Airport Management2014-48652014-48062016-04-01619211310.3926/jairm.5030Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case studyPrasun Bhattacharjee0East Tennessee State UniversityPurpose: This paper investigates the nature of conduct that existed in the U.S. airline hub-to-hub markets prior to the recent merger wave of the legacy carriers. We explore the strategic importance of network carrier hubs in form of “spheres of influence” on airline market conduct. We also simultaneously recognize the overgrowing role played by Low Cost Carriers (LCC) over the years by estimating two conduct parameters - one in markets where LCCs directly compete head-to-head with legacy carriers and the other for markets which LCCs do not serve but has presence in the hub airports or adjacent airports comprising the market endpoints. Thus our supply side framework also sheds some light on the issue of perfect contestability in airline industry. Design/methodology/approach: We estimate a structural oligopoly model for differentiated products with competitive interactions using DB1B data for first quarter of 2004. Findings: Our results imply that the nature of competition is more aggressive relative to Bertrand behavior in hub-to-hub markets and that these markets are less than perfectly contestable. Originality/value: This paper adds to the empirical literature of airline competition by enabling estimation of the actual conduct parameter assuming firm price setting behavior in presence of product differentiation. Contrary to existing literature on airline competition, a structural model enables us to systematically separate out effects of demand, cost and strategic factors on observed airline prices.http://www.jairm.org/index.php/jairm/article/view/50structural oligopoly, product differentiation, hub-to-hub markets, conduct, airline competition, contestability, low cost carriers, spheres of influence |
| spellingShingle | Prasun Bhattacharjee Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study Journal of Airline and Airport Management structural oligopoly, product differentiation, hub-to-hub markets, conduct, airline competition, contestability, low cost carriers, spheres of influence |
| title | Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study |
| title_full | Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study |
| title_fullStr | Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study |
| title_full_unstemmed | Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study |
| title_short | Competition and coordination in the U.S. airline hub-to-hub markets: An industry pre-merger case study |
| title_sort | competition and coordination in the u s airline hub to hub markets an industry pre merger case study |
| topic | structural oligopoly, product differentiation, hub-to-hub markets, conduct, airline competition, contestability, low cost carriers, spheres of influence |
| url | http://www.jairm.org/index.php/jairm/article/view/50 |
| work_keys_str_mv | AT prasunbhattacharjee competitionandcoordinationintheusairlinehubtohubmarketsanindustrypremergercasestudy |