Strategic interactions and airline network morphology under demand uncertainty |
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Authors: | Philippe Barla Christos Constantatos |
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Affiliation: | a Département d’économique and GREEN, Université Laval, Québec, QC, Canada G1K 7P4 b University of Macedonia, Thessaloniki, Greece |
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Abstract: | In this paper, we examine how strategic interactions affect airline network under demand uncertainty. We develop a three-stage duopoly game: at stage 1 airlines determine their network structure (linear versus hub-and-spoke); at stage 2 they decide on their capacities; at stage 3 firms compete in quantities. The main feature of the model is that firms have to decide on network structure and capacities while facing demand uncertainty. We show that while hubbing is efficient, airlines may choose a linear network for strategic reasons. Furthermore, we show that this structure softens competition by preventing contagion of competition across markets. |
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Keywords: | L13 L93 |
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