Essays on airline economics
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Abstract
Code-sharing is an agreement between two (or three, in one case) carriers, in which one carrier (the operating carrier) allows another carrier (its code-share partner, the marketing carrier) to market and sell seats on some of the operating carrier's flights under the marketing carrier's reservation code. When a proposal of code-sharing between two major airlines is initiated, a debate often ensues between the policy-makers (U.S. Department of Justice) and carriers. The U.S. Department of Justice hesitates to approve such proposals due to concerns that these agreements may reduce competition and hence induce a loss of consumer welfare, given the fact that potential code-sharing partners already have high market shares. However, carriers have claimed that passengers benefit from code-sharing since it provides more product choices and destinations.
My dissertation analyzes the competitive effects of code-sharing. The first chapter is a reduced-form analysis of competitive effects. I found code-shared products are priced significantly lower. I conjecture that product differentiation allows airlines to price discriminate consumers. The second chapter is then a structural analysis considering both consumer demand and firms' costs and marknps (for both code-shared and non code-shared products) to investigate price discrimination. I found that even airlines who are in a code-sharing partnership compete with each other, as is reflected in their competit ive pricing strategies, including but not restricted to the use of second degree price discrimination. The economies of code-sharing reduce marginal cost , and firms are able to price at higher markups. Consumers benefit from quality variety even though code-shared flights have lower quality compared to non-codeshared ones. This implies that demand increases and consumers have large total surplus if code shared products are regarded as different products from non-code shared flights. The third chapter investigates the competitive price effects of the CO-NW-DL three-way code-sharing. I analyze how pricing changes after the merger between two code-share partners (DL and NW), and compare t his to the competitive price effects after code-sharing.
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Thesis (Ph.D.)--Boston University
PLEASE NOTE: Boston University Libraries did not receive an Authorization To Manage form for this thesis or dissertation. It is therefore not openly accessible, though it may be available by request. If you are the author or principal advisor of this work and would like to request open access for it, please contact us at open-help@bu.edu. Thank you.
PLEASE NOTE: Boston University Libraries did not receive an Authorization To Manage form for this thesis or dissertation. It is therefore not openly accessible, though it may be available by request. If you are the author or principal advisor of this work and would like to request open access for it, please contact us at open-help@bu.edu. Thank you.