Carve-Outs Under Airline Antitrust Immunity
Jan K. Brueckner
University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
KU Leuven - Department of Economics
CESifo Working Paper Series No. 2848
This paper offers the first formal economic analysis of carve-outs under airline antitrust im- munity. Carve-outs are designed to limit the potential anticompetitive effects of cooperation by alliance partners in hub-to-hub markets, where they provide overlapping nonstop service. While the paper shows that carve-outs are beneficial when the alliance does not involve full integration of the partners’ operations on the hub-to-hub route, its key point is that a carve-out may be harmful when imposed on a joint-venture alliance. A JV alliance involves full exploitation of economies of traffic density on the hub-to-hub route, and a carve-out prevents the realization of these benefits. While a carve-out may limit anticompetitive incentives on the hub-to-hub route, welfare may be reduced if the resulting gains are overshadowed by the efficiency loss generated by the carve-out.
Number of Pages in PDF File: 43
Keywords: carve-out, alliance, antitrust immunity, airlines
JEL Classification: L40
Date posted: November 17, 2009
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