Carrier Collaboration with Endogenous Networks: Or, the Limits of What Carrier Collaboration Can Achieve Under Antitrust Immunity

26 Pages Posted: 17 Jul 2020 Last revised: 28 Nov 2020

See all articles by Achim I. Czerny

Achim I. Czerny

Hong Kong Polytechnic University - Faculty of Business

Peter J. Jost

WHU - Otto Beisheim School of Management - Chair of Theory of Organization

Hao Lang

Hong Kong Polytechnic University - Faculty of Business

Benny Mantin

Luxembourg Centre for Logistics and Supply Chain Management (LCL)

Date Written: November 22, 2020

Abstract

Airlines maintain complex networks that are to large extents complementary. Therefore, some passengers need to change aircraft and airlines to fly from their origin to their final destination. The present study captures pricing problems in terms of double marginalization but goes one step further by incorporating network choices. The model involves a two-stage game with two carriers who choose their complementary networks in the first stage and fares in the second stage. Each carrier’s network involves one or two links that are distributed geographically or distributed in time. If both carriers maintain two links, then transfer passengers can choose between two alternative connections which they consider as imperfect substitutes. There are only transfer passengers, and maintaining a link is costly. The analysis reveals that carrier collaboration and antitrust immunity can eliminate double marginalization and create incentives to extend networks. Our results indicate that the scope for the improvement of carrier networks via antritrust immunity can be rather limited relative to the social desirability of more extensive carrier networks. A possible policy lesson is that airlines should be granted antitrust immunity conditional on network expansion and/or frequency obligations.

Keywords: Carriers; networks, frequencies, double marginalization, antitrust immunity, service obligations

JEL Classification: L41, L93

Suggested Citation

Czerny, Achim I. and Jost, Peter J. and Lang, Hao and Mantin, Benny, Carrier Collaboration with Endogenous Networks: Or, the Limits of What Carrier Collaboration Can Achieve Under Antitrust Immunity (November 22, 2020). Available at SSRN: https://ssrn.com/abstract=3635497 or http://dx.doi.org/10.2139/ssrn.3635497

Achim I. Czerny (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Peter J. Jost

WHU - Otto Beisheim School of Management - Chair of Theory of Organization ( email )

Offentlichkeitsarbeit, Burgplatz 2
56179 Vallendar
Germany

Hao Lang

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Benny Mantin

Luxembourg Centre for Logistics and Supply Chain Management (LCL) ( email )

6, rue Richard Coudenhove-Kalergi
Luxembourg, L-1359
Luxembourg

HOME PAGE: http://mantin-in-the-air.com/

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