| By: |
Yanhao Wei (Department of Economics, University of Pennsylvania) |
| Abstract: |
As demand increases, airline carriers often increase flight frequencies to
meet the larger flow of passengers in their networks, which reduces
passengers' schedule delays and attracts more demand. Motivated by this, I
study a structural model of the U.S. airline industry accounting for possible
network effects of demand compared with previous studies, the model implies
higher cost estimates, which seem more consistent with the unprofitability of
the industry; below-marginal-cost pricing becomes possible and appears on many
routes. I also study airline mergers and find that the network effects can be
the main factor underlying their profitability. |
| Keywords: |
Airlines, Network Effects, Flight Frequency, Merger, Networks |
| JEL: |
L13 L93 D62 C31 |
| Date: |
2014–09–21 |
| URL: |
http://d.repec.org/n?u=RePEc:pen:papers:14-027&r=tur |