Alliances in the Air: Some Worldwide Evidence

30 Pages Posted: 3 Aug 2005

See all articles by Philippe Gagnepain

Philippe Gagnepain

Charles III University of Madrid - Department of Economics

Pedro L. Marin

Charles III University of Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 2005

Abstract

We consider an empirical model of worldwide airlines' alliances that we apply to a large set of companies for the period 1995-2000, with special attention to US and EU carriers. From the estimation of a cost, capacity and demand system that accounts for cross-price elasticities, we attempt to shed light on several interesting issues: First, we analyze whether alliance members' networks are complements or substitutes. Second, we construct price-cost margins and test several hypothesis of non-cooperative behavior such as individual Nash and joint price setting within the alliance. We suggest that current alliances' pricing habits are not uniform and range from individual Nash to more competitive behaviors.

Keywords: Alliances, airline, cross-price elasticities, Nash behavior

JEL Classification: L11, L13, L41, L93

Suggested Citation

Gagnepain, Philippe and Marin, Pedro L., Alliances in the Air: Some Worldwide Evidence (May 2005). CEPR Discussion Paper No. 5063, Available at SSRN: https://ssrn.com/abstract=775906

Philippe Gagnepain

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 5732 (Phone)

Pedro L. Marin (Contact Author)

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9646 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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