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Carve-Outs Under Airline Antitrust Immunity

43 Pages Posted: 17 Nov 2009  

Jan K. Brueckner

University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Stef Proost

KU Leuven - Department of Economics

Date Written: November 2009

Abstract

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.

Keywords: carve-out, alliance, antitrust immunity, airlines

JEL Classification: L40

Suggested Citation

Brueckner, Jan K. and Proost, Stef, Carve-Outs Under Airline Antitrust Immunity (November 2009). CESifo Working Paper Series No. 2848. Available at SSRN: https://ssrn.com/abstract=1507665

Jan K. Brueckner (Contact Author)

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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