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Network Structure and Entry in the Deregulated Airline Industry

Author

Listed:
  • BERECHMAN, Joseph

    (Department of Public Policy and The Eitan Berglas School of Economics, Tel Aviv University, Israel)

  • PODDAR, Sougata

    (CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

  • SHY, Oz

    (The Eitan Berglas School of Economics, Tel Aviv University, Israel)

Abstract

In this paper, we explore how an incumbent airline firm structures its route network under the threat of entry caused by deregulation. We show that entry induces the incumbent firm to strategically alter its flight operating network structure from a fully connected network (FC) to a hub-and-spoke network (HS). While the literature always assumed that the use of a HS network is primarily for the purpose of cost reduction, we show that HS can be used as an entry deterrence/accommodation mechanism even in .cases where the HS is more costly to operate. We further analyze the effects of aircraft capacity on the strategic behavior of an airline firm.

Suggested Citation

  • BERECHMAN, Joseph & PODDAR, Sougata & SHY, Oz, 1994. "Network Structure and Entry in the Deregulated Airline Industry," LIDAM Discussion Papers CORE 1994064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1994064
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1994.html
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    Cited by:

    1. Ming Hsin Lin, 2005. "Alliances and entry in a simple airline network," Economics Bulletin, AccessEcon, vol. 12(4), pages 1-11.
    2. 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.
    3. Pels, Eric, 2001. "A note on airline alliances," Journal of Air Transport Management, Elsevier, vol. 7(1), pages 3-7.

    More about this item

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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