Evidence on Pricing from the Continental Airlines and Northwest Airlines Code-Share Agreement

24 Pages Posted: 13 Dec 2005

See all articles by Oliver M. Richard

Oliver M. Richard

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

Olivier Armantier

Federal Reserve Bank of New York

Date Written: March 2005

Abstract

Recent code-share agreements among major US airlines represent a significant development in the airline industry, as these agreements allow the partner airlines to sell seats on each other's flights across the US. In this paper, we examine with original data how prices and passenger volumes were affected by the first significant alliance among major US carriers, the 1999 alliance between Continental Airlines and Northwest Airlines. We find evidence of higher passenger volumes and lower prices across markets in which CO-NW code-shared. However, we also find evidence of significantly higher prices across markets with nonstop flights from CO and NW. In these markets, our results suggest that, as CO-NW used their agreement to expand the pool of passengers to whom they can sell seats on their aircraft, they have in turn extracted a higher price, on average. Hence, airlines need not be colluding for prices to rise following code-share agreements. This finding is significant for policy-makers traditionally focus on collusion in their reviews of these agreements.

Keywords: Antitrust, Code-Share, Airline Alliances

JEL Classification: L11, L40, C31, L93

Suggested Citation

Richard, Oliver M. and Armantier, Olivier, Evidence on Pricing from the Continental Airlines and Northwest Airlines Code-Share Agreement (March 2005). Available at SSRN: https://ssrn.com/abstract=869242 or http://dx.doi.org/10.2139/ssrn.869242

Oliver M. Richard (Contact Author)

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

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

Olivier Armantier

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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