Bottleneck Co-Ownership as a Regulatory Alternative: Evidence from Airline Industry

Abstract

This paper empirically tests the bottleneck co-ownership theory presented in Boffa and Panzar (2012) by using data in the US airline industry. We present a structural model of codesharing between major airlines and regional airlines. The empirical evidence in this study supports the bottleneck coownership theory. The estimation results show that bottleneck co-ownership as a regulatory alternative gains higher welfare than average pricing in disintegrated vertical relation. Consumers benefit with lower product prices and firms have higher profits.

Keywords: regulatory airline codesharing