Entry and Exit in Hub-Spoke Networks

RAND JOURNAL OF ECONOMICS, Vol. 28, No. 2, 1997

Posted: 25 Jun 1997

See all articles by Kenneth Hendricks

Kenneth Hendricks

University of Texas at Austin - Department of Economics

Michele Piccione

London School of Economics & Political Science (LSE) - Department of Economics

Abstract

We offer an explanation for why regional carriers may not survive in hub-spoke networks. When a regional carrier and a hub operator compete in a spoke market, both will suffer losses in that market. But if the hub operator exists in the spoke market, its profits in connecting markets will fall. As long as the number of such markets is large enough, it is a dominant strategy for the hub operator not to exit from the spoke market. The regional carrier is then forced to exit, assuming fixed costs are not sunk.

JEL Classification: L93

Suggested Citation

Hendricks, Kenneth and Piccione, Michele, Entry and Exit in Hub-Spoke Networks. RAND JOURNAL OF ECONOMICS, Vol. 28, No. 2, 1997. Available at SSRN: https://ssrn.com/abstract=8697

Kenneth Hendricks (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States
512-475-8532 (Phone)
512-471-3510 (Fax)

Michele Piccione

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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