Airline consolidation and the distribution of traffic between primary and secondary hubs

Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta's network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta's primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York's JFK airport.     

(When) Do hub airlines internalize their self-imposed congestion delays?

Specification tests using stochastic bottleneck models of airport congestion investigate whether dominant airlines internalize or ignore self-imposed delays at twenty-seven major US airports. Data on flight times determine the airport's landing and takeoff delays for every minute of operation during peak travel days. Dynamic congestion functions based on stochastic-queuing theory separately identify delays that aircraft experience directly, impose internally on their airline's other aircraft, or impose externally on other airlines. Specification tests largely reject internalization and fail to reject non-internalization by dominant airlines. Optimal pricing should value all time using non-dominant aircraft time values and treat all delays as external.     

Time for carbon neutrality and other emission reduction measures at European airports

Since 2009, one out of five European airports participate in carbon dioxide (CO₂) reduction programmes, although only 8% of them are certified as CO₂ neutral. This study aims to examine empirically internal as well as external factors of importance for airport participation in emission reduction programmes at different levels of involvement. Estimates of the Cox proportional hazard model based on almost 600 airports for the period 2009 to 2017 reveal that the likelihood and timing of participation increase with the size of the airport (number of passengers), independent of level of commitment. Performance (growth in number of passengers) and if the airport is part of a group are crucial for the advanced levels of the programme. Environmental progress at the country level is also a significant predictor, most distinctly represented by renewable electricity generation, whereas airports serving as hubs for low‐cost airlines are less likely to enter the carbon reduction programmes.     

THE ECONOMIC THEORY OF VERTICAL RESTRAINTS

Abstract.  The types of contracts arising in a typical vertical manufacturer–retailer relationship are more sophisticated than a simple uniform price. In addition to setting per unit prices, manufacturers and retailers also revert to non-linear pricing and non-price instruments. These instruments or contracts are referred to as vertical restraints and can take the form of franchise fees, resale-price maintenance, exclusive dealing, exclusive territories and slotting allowances. The use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers. This paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices, market structure, efficiency and welfare.     

Downstream Competition, Foreclosure, and Vertical Integration

This paper analyzes the effect of competition among downstream firms on an upstream firm's payoff and on its incentive to integrate vertically when firms in both segments negotiate optimal contracts. We argue that as downstream competition becomes more intense, the upstream firm obtains a larger share of a smaller downstream industry profit. The upstream firm may encourage downstream competition (even excessively) in response to high downstream bargaining power. The option of vertical integration may be a barrier to entry downstream and may trigger strategic horizontal spinoffs or mergers. We extend the analysis to upstream competition.     

Upstream Foreclosure Decisions under Successive Monopoly Structure

This article models the upstream foreclosure decisions using the successive monopoly structure, whereby production requires two types of inputs, exclusive materials, and commonly available labor. An opportunity for upstream foreclosure arises when a downstream firm strategically merges with the material supplier, thereby foreclosing its rival's access to the exclusive input. The model shows that upstream foreclosure is not always optimal. A downstream firm opts for upstream foreclosure only when its relative positions in the labor‐management and material‐procurement negotiations are sufficiently strong. Copyright © 2014 John Wiley & Sons, Ltd.     

The Impact of the Big 8 Mergers on Market Power: Evidence from the Hong Kong Market

This study examines the impact of the Big 8 mergers on market power in an audit market where the merging firms have little presence. Audit fee changes for each merger participating firm are identified and fee changes for several post‐merger years are examined. The pre‐merger differential market power between the merging and non‐merging long‐established Big 8 firms (Price Waterhouse and KPMG Peat Marwick) in Hong Kong provides a unique opportunity to examine whether the mergers could help the merging firms to increase their market power. The results are consistent with the hypotheses that the audit fees of the merging firms were significantly lower than that of the non‐merging, long‐established Big 8 firms before the mergers, but the audit fees of the merged firms increased significantly to a level comparable with that of the latter group after the mergers. In addition, the market share of the merged firms increased significantly after the mergers. However, no association is found between market concentration and market power. Overall, the results show that the Big 8 mergers have helped the merged firms increase their market power and market share in the Hong Kong audit market where they had little presence.     

The evolution of employers' organisations in the United Kingdom: Extending countervailing power

The concept of countervailing power has been used to suggest that the power of unions explains the origins and development of employers' organisations (EOs). However, unions have declined since the 1970s, but EOs continue to play an important role in employment relations. If pressure from unions is not sufficient to explain continuing employer organisation, what does account for it? This article pursues this question by examining the evolution and activity of UK EOs between the 1960s and 2016. Our countervailing power argument goes beyond a sole focus on unions to include changing pressures and demands on EOs caused by the state such as individual rights legislation and campaigns by civil society organisations. The changing force exerted by these societal pressures helps to explain the shift of EOs' focus from collective bargaining, nowadays only pursued by a minority of EOs, to lobbying, provision of services, legal support, and training.     

谁来给首都机场“消肿”?

2007年1月，张志忠被派往首都机场集团任总经理，当时的董事长是李培英。调动之前，只有民航局核心层知道，李培英正在被调查中。直到去年，李培英卷入上海社保案，6月，被双规。     

Picking a loser: Strategic surprise in a design and development game

We take a setting in which upstream players produce design ideas and downstream players select among these ideas to develop finished products. Design diversity is valuable at the upstream stage and coordination is valuable at the downstream stage. However, this outcome is not always realized. We show that an intermediary between upstream and downstream can improve on equilibrium outcomes by acting as a coordination and commitment device whose optimal policy must sometimes reward inferior ideas. We apply the model to technology standards, trend‐driven industries, political primaries, and the management of process innovation. We discuss incentives to vertically integrate.     

Competition and market power in the European airline industry: 1976–90

In this paper, we study the market power of European airlines in an oligopoly structure with product differentiation for the period 1976–1990 and test the monopoly hypothesis (Captain, 1993). The paper analyzes the level of competition among eight major European airlines and finds little evidence for market power in the industry over that period. One of our main findings is that the high prices in Europe are not entirely due to the bilateral agreements (leading to possible monopoly power), but rather are a result of very high cost structures in the industry. These results are broadly in agreement with those of Roeller and Sickles (1994) which analyzes these issues in the European Industry by estimating a structural, two-stage game. © 1997 John Wiley & Sons, Ltd.     

Airline flight networks, cycle times, and profitability: 2004–2006

This research investigates the relationships between airline flight networks, aircraft cycle times, and carrier profitability for ten large US domestic airlines. We find that direct point-to-point flight networks and short cycle times are operational factors that airlines should exploit to improve profitability. These findings are based on the analysis of 11.9 million flight records from 2004 through 2006. The results contradict earlier research validating performance advantages of hub-and-spoke flight networks. Today, the advantages of passenger consolidation at hub airports are lost to lower aircraft utilization and productivity problems created by the extended cycle times at hubs. We also find that airline operating profit can be increased by improving the efficiency of the aircraft turnaround process and decreasing aircraft fleet complexity. This research also provides an estimate of the marginal opportunity cost of ground time. A 1-min reduction in aircraft fleet ground time increases the average sized carriers’ operating income by $12 to $18 million.     

Competing Networks,Spatial and Industrial Concentration in the US Airline Industry

Abstract

The paper uses Gini decomposition analysis to evaluate changes in the spatial distribution and industry shares of total US air traffic, as well as analysing the decomposition components for individual airlines and airports for the period 1990–2002. The paper develops explicit relationships between two of the main decomposition schemes used in the income inequality literature and shows the insights that such analysis may provide for evaluation and examination of air transport networks and traffic distributions. A multi-dimensional Gini and its decomposition are derived using an adjustment method derived from the relationship between the two Gini decomposition schemes.     

The Role of Upstream‐Downstream Competition on Bundling Decisions: Should Regulators Force Firms to Unbundle?

We develop an upstream–downstream model to analyze downstream firms' incentives to bundle. In our framework, the upstream firms are content providers (such as television stations) and the downstream firms are system operators (such as cable/satellite operators). We show that an a la carte regulation (i.e., a regulation that forces downstream firms to unbundle) leads to higher consumer surplus, if the unregulated equilibrium exhibits pure bundling (PB). Hence, our model predicts that in the television industry, which is mainly characterized by PB, an a la carte regulation will be beneficial for the consumers. If, on the other hand, the unregulated equilibrium is characterized by mixed bundling, then an a la carte regulation will increase consumer welfare provided that demand for multiple purchases is strong.     

Profit‐raising Entry in Vertically Related Markets

We extend the standard vertical oligopoly model to allow for free entry in the upstream sector, and research and development with knowledge spillover in the downstream sector. The fact that an increase in the number of firms lowers industry profit is the common wisdom that may not hold in vertical structure of production. We provide a complementary reasoning and find that aggregate downstream profit can increase with downstream entry when the knowledge spillover effect and the entry cost are moderate. Copyright © 2014 John Wiley & Sons, Ltd.     

DIVISION HEADQUARTERS GO ABROAD - A STEP IN THE INTERNATIONALIZATION OF THE MULTINATIONAL CORPORATION*

Why are division headquarters of multinational corporations in some cases located abroad? In the multinational corporation the physical location of division headquarters is a problematic issue because of the need for close links both to corporate headquarters and the foreign subsidiaries. This paper develops a model explaining this location as a consequence of power relations associated with the internationalization of the corporation and tests it on a sample of divisions of Swedish multinationals. the results support the view that power relations have an impact on location of division headquarters. One interesting result is the clear indication of countervailing forces, consisting of an attraction force of foreign dominant subsidiaries and a resisting force related to the interests of corporate headquarters.     

Discriminatory input pricing and strategic delegation

This paper examines how discriminatory input pricing by an upstream monopolist affects the incentives that owners of downstream duopolists offer their managers. Regardless of the mode of competition (quantity or price), owners of downstream firms induce their managers to be more profit‐oriented and to behave less aggressively when the monopolist is allowed to price‐discriminate than when he charges a uniform price. If the monopolist price‐discriminates, managerial downstream firms always earn more than owner‐managed profit‐maximizing firms. However, if the monopolist charges a uniform price, managerial downstream firms earn more than profit‐maximizing counterparts under price competition and earn less under quantity competition. Copyright © 2009 John Wiley & Sons, Ltd.     

对萍乡市老年人家政服务商业模式的探讨

文章提出的价值链商业模式,既能通过会员制和增值服务锁定下游客户资源,又能通过公司化运作锁定上游家政服务员资源,还能通过收取客户的会员费、服务费和服务员的管理费来保证运营收入的稳步增长,理论上有可行性,具有一定的参考价值。虽然在实施过程中有一定困难,但是这种商业模式是否有真正存在价值还取决于能否经受起市场的考验。     

Independent Collective Representation: Providing Effectiveness, Fairness, and Democracy in the Employment Relationship

Protection against arbitrary management action has always been a concern of employees. Enlightened managerialism has been one approach to addressing these concerns. This approach is compromised by the conflicts of interest that characterize the employment relationship in a market system. We argue in this paper that independent collective representation functions to protect employees while leaving the employer with sufficient freedom to manage. Trade unions, as a counter weight to the exercise of absolute managerial power, complement a pluralist democratic system. The exercise of absolute power, the absence of accountability and countervailing checks and balances, are foreign to any democratic polity. At enterprise level, trade unions manage the ongoing tensions and conflicts between democratic humanistic values and market values.     

Vertical Networks, Integration, and Connectivity

This paper studies competition in a network industry with a stylized two layered network structure, and examines: (i) price and connectivity incentives of the upstream networks, and (ii) incentives for vertical integration between an upstream network provider and a downstream firm. The main result of this paper is that vertical integration occurs only if the initial installed-base difference between the upstream networks is sufficiently small, and in that case, industry is configured with two vertically integrated networks, which yields highest incentives to invest in quality of interconnection. When the installed-base difference is sufficiently large, there is no integration in the industry, and neither of the firms have an incentive to invest in quality of interconnection. An industry configuration in which only the large network integrates and excludes (or raises cost of) its downstream rival does not appear as an equilibrium outcome: in the presence of a large asymmetry between the networks, when quality of interconnection is a strategic variable, the large network can exercise a substantial market power without vertical integration. Therefore, a vertically separated industry structure does not necessarily yield procompetitive outcomes.