Air cargo alliances and competition in passenger markets |
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| Affiliation: | 1. University of British Columbia, 2053 Main Mall, Vancouver, BC, Canada V6T 1Z2;2. City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong;3. Chinese University of Hong Kong, Shatin, N.T., Hong Kong;1. University of North Texas, College of Business, 1155 Union Circle #311396, Denton, TX 76203-5017, USA;2. Kedge Business School, 680cours de la Liberation, 33405, Talence, France;3. Daegu-Gyeongbuk Development Institute, 43, Cheongsu-Ro, Suseong-Gu, Daegu, Republic of Korea |
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| Abstract: | This paper develops an oligopoly model to investigate the effect of an air cargo alliance on competition in passenger markets. We consider a model in which the partners, while continuing to offer their respective passenger services, jointly offer a new integrated cargo service by utilizing their passenger aircraft and routes. We find that such an alliance will likely increase the partners’ own outputs, while simultaneously decreasing its rivals’ outputs, in not only the cargo market but also the secondary passenger market. Furthermore, the alliance is likely to reduce passenger prices and increase total surplus. |
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