DP5063 Alliances in the Air: Some Worldwide Evidence

Author(s): Philippe Gagnepain, Pedro Luis Marín Uribe
Publication Date: May 2005
Keyword(s): airline, alliances, cross-price elasticities, Nash behaviour
JEL(s): L11, L13, L41, L93
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5063

We consider an empirical model of worldwide airlines’ alliances that we apply to a large set of companies for the period 1995-2000, with special attention to US and EU carriers. From the estimation of a cost, capacity and demand system that accounts for cross-price elasticities, we attempt to shed light on several interesting issues: First, we analyse whether alliance members’ networks are complements or substitutes. Second, we construct price-cost margins and test several hypothesis of non-cooperative behaviour such as individual Nash and joint price setting within the alliance. We suggest that current alliances' pricing habits are not uniform and range from individual Nash to more competitive behaviours.