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Airline Alliances, Carve-Outs and Collusion

Author

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  • Jan K. Brueckner

    (University of California, Irvine)

  • Pierre M. Picard

    (CREA, University of Luxembourg and CORE, Universit é Catholique de Louvain)

Abstract

In this paper, we ask how antitrust immunity subject to a carve- out affects collusion incentives in international airline alliances. We show that the gains from economies of density due to higher interline traffic under the alliance strengthen the incentive to collude on the interhub route, while the accompanying revenue gain heightens the incentive to defect from collusive behavior. These two effects exactly cancel in the case of linear demand and linear economies of density. Under this approximation, the incentives for interhub collusion are no different before and after the formation of an airline alliance subject to a carve-out.

Suggested Citation

  • Jan K. Brueckner & Pierre M. Picard, 2012. "Airline Alliances, Carve-Outs and Collusion," DEM Discussion Paper Series 12-09, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:12-09
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    More about this item

    Keywords

    Airline; Collusion; Competition Policy;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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