Domestic Airline Alliances and Consumer Welfare

45 Pages Posted: 13 Dec 2005

See all articles by Olivier Armantier

Olivier Armantier

Federal Reserve Bank of New York

Oliver M. Richard

U.S. Department of Justice - Economic Analysis Group - Antitrust Division

Date Written: July 2007

Abstract

This paper investigates the consumer welfare consequences of the recent code-share agreement between Continental Airlines and Northwest Airlines. We develop a discrete choice model based on individual flight characteristics. This structural model recognizes that consumers i) may have heterogeneous preferences for flight attributes, and ii) may face different prices for the same flight. The empirical methodology also deals with the measurement error problem stemming from the absence of consumer level data on prices. The estimation results suggest that, while the code-share agreement did not impact consumers significantly on average, it increased the average surplus of connecting passengers, but it decreased the average surplus of nonstop passengers. Interestingly, the magnitude of our welfare results may be attributed in large part to changes in products characteristics other than prices.

Keywords: Discrete Choice; Consumer Welfare; Structural Estimation

JEL Classification: D12, D60, C51, C15, L93

Suggested Citation

Armantier, Olivier and Richard, Oliver M., Domestic Airline Alliances and Consumer Welfare (July 2007). Available at SSRN: https://ssrn.com/abstract=869240 or http://dx.doi.org/10.2139/ssrn.869240

Olivier Armantier (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Oliver M. Richard

U.S. Department of Justice - Economic Analysis Group - Antitrust Division ( email )

450 Fifth Street, NW
Ninth Floor
Washington, DC 20530
United States

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