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Network effects, heterogeneous time value and network formation in the airline market

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  • Kawasaki, Akio

Abstract

This study examines an airline firm's adoption of a hub-spoke network or a point-to-point network when considering network effects from the demand side and the heterogeneity of passengers' time value. The results of this study reveal the following: If the time value for leisure passengers is sufficiently small and the operating cost is medium or when the time value for leisure passengers is high and operating cost is small, the monopoly airline adopts a hub-spoke network. Otherwise, a point-to-point network is adopted. Moreover, even when the airline chooses a point-to-point network, business passengers might move via another city according to second-degree price discrimination.

Suggested Citation

  • Kawasaki, Akio, 2008. "Network effects, heterogeneous time value and network formation in the airline market," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 388-403, July.
    • Handle: RePEc:eee:regeco:v:38:y:2008:i:4:p:388-403
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    References listed on IDEAS

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    Cited by:

    1. Wang, Chunan & Wang, Xiaoyu, 2019. "Airport congestion delays and airline networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 328-349.
    2. Tiziana D'Alfonso & Changmin Jiang & Valentina Bracaglia, 2015. "Air transport and high-speed rail competition: environmental implications and mitigation strategies," DIAG Technical Reports 2015-15, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    3. Lin, Ming Hsin & Zhang, Anming, 2016. "Hub congestion pricing: Discriminatory passenger charges," Economics of Transportation, Elsevier, vol. 5(C), pages 37-48.
    4. Teraji, Yusuke & Morimoto, Yu, 2014. "Price competition of airports and its effect on the airline network," Economics of Transportation, Elsevier, vol. 3(1), pages 45-57.
    5. Lin, Ming Hsin, 2013. "Airport privatization in congested hub–spoke networks," Transportation Research Part B: Methodological, Elsevier, vol. 54(C), pages 51-67.
    6. Hattori Keisuke & Lin Ming-Hsin, 2011. "Alliance Partner Choice in Markets with Vertical and Horizontal Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-27, June.
    7. Wang, Chunan & Wang, Xiaoyu, 2019. "Why do airlines prefer multi-hub networks?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 124(C), pages 56-74.
    8. Doi, Naoshi, 2014. "Mutual influence across routes using a common airport: The case of the domestic market in Japan," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 132-136.
    9. Lin, Ming Hsin & Zhang, Yimin, 2017. "Hub-airport congestion pricing and capacity investment," Transportation Research Part B: Methodological, Elsevier, vol. 101(C), pages 89-106.
    10. M. Nenem & E. Ozkan-Gunay, 2012. "Determining Hub Efficiency in Europe, the Middle East, and North Africa: The Impact of Geographical Positioning," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 2(2), pages 37-53, December.
    11. Álvarez-Sanjaime, Óscar & Cantos-Sánchez, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, Jose J., 2020. "A three-stage competition game in an air transport network under asymmetric valuation of flight frequencies," Economics of Transportation, Elsevier, vol. 21(C).
    12. Akio Kawasaki & Ming Hsin Lin, 2013. "Airline Schedule Competition and the Entry Route Choices of Low-Cost Carriers," Australian Economic Papers, Wiley Blackwell, vol. 52(2), pages 97-114, June.
    13. Flores-Fillol, Ricardo, 2009. "Airline competition and network structure," Transportation Research Part B: Methodological, Elsevier, vol. 43(10), pages 966-983, December.
    14. Lin, Ming Hsin, 2012. "Airlines-within-airlines strategies and existence of low-cost carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(3), pages 637-651.
    15. Kawamori, Tomohiko & Lin, Ming Hsin, 2013. "Airline mergers with low cost carriers," Economics of Transportation, Elsevier, vol. 2(2), pages 63-71.
    16. Jiang, Mei & Jiang, Changmin & Xiao, Yi-bin & Wang, Chunan, 2021. "Air-HSR cooperation: Impacts on service frequency and environment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 150(C).
    17. Akio Kawasaki, 2012. "Hub location with scheduling effects in a monopoly airline market," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(3), pages 805-819, December.

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