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Network Structure and Entry, in the Deregulated Airline Industry

Author

Listed:
  • Joseph Berechman

    (Tel Aviv University)

  • Sougata Poddar

    (Institute of Economics, University of Copenhagen)

  • Oz Shy

    (Stockholm School of Economics)

Abstract

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 from a fully connected network (FC) to a hub-and-spoke network (HS). While most of the literature always assumed that the use of a HS network is primarily for the purpose of cost reduction, we show that hub-and-spoke operation can be used as a strategic device by the incumbent firm when it faces a threat of entry in its operating zone.

Suggested Citation

  • Joseph Berechman & Sougata Poddar & Oz Shy, 1997. "Network Structure and Entry, in the Deregulated Airline Industry," CIE Discussion Papers 1997-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:1997-10
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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

    Keywords

    airline deregulation; hub-and-spoke; networks; entry;
    All these keywords.

    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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