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Airline Alliances, Carve-Outs and CollusionJan K. BruecknerUniversity of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Pierre M. PicardCentre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg September 30, 2011 CESifo Working Paper Series No. 3593 Abstract: In this paper, we ask how antitrust immunity subject to a carve-out affects collusion incentives in international airline alliances. We show that the gains from economies of density due to higher interline traffic under the alliance strengthen the incentive to collude on the interhub segment, while the accompanying revenue gain heightens the incentive to defect from collusive behavior. These two effects exactly cancel in the case of linear demands and linear economies of density. Under this approximation, the incentives for interhub collusion are no different before and after the emergence of an airline alliance subject to a carve-out.
Number of Pages in PDF File: 12 Keywords: collusion, carve-out JEL Classification: L000 working papers seriesDate posted: October 5, 2011Suggested CitationContact Information
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