A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence

14 Pages Posted: 29 Jul 2019

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics

Date Written: Juny 1, 2010

Abstract

In a hub-and-spoke network, the profit function of an airline is supermodular with respect to the airline's own entry decisions for different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy for deterring the entry of competitors. This paper presents an empirical dynamic game of airline network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with special attention to empirical evidence regarding the entry deterrence motive.

Keywords: Dynamic games, Airline networks, Hub-and-spoke, Entry deterrence, Supermodularity

JEL Classification: C10, C35, C63, C73, L10, L13, L93

Suggested Citation

Aguirregabiria, Victor and Ho, Chun-Yu, A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence (Juny 1, 2010). International Journal of Industrial Organization, Vol. 28, No. 4, 2010, Available at SSRN: https://ssrn.com/abstract=2860921

Victor Aguirregabiria (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
4169784358 (Phone)

HOME PAGE: http://individual.utoronto.ca/vaguirre/

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics ( email )

1400 Washington Ave
Albany, NY 12222
United States

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