Airline strategic alliances in overlapping markets: Should policymakers be concerned?

- When there is significant overlap in potential partner airlines׳ route networks, policymakers have expressed concern that an alliance between such airlines may facilitate collusion in the partners׳ overlapping markets.
- Our paper puts together a structural econometric model that is able to explicitly disentangle the demand and supply effects associated with an alliance between partner airlines on their overlapping routes.
- The estimates from our structural econometric model do identify demand-increasing effects associated with the Delta/Continental/Northwest alliance, but statistically reject collusive behavior between the partners.

When there is significant overlap in potential partner airlines׳ route networks, policymakers have expressed concern that an alliance between such airlines may facilitate collusion on price and/or service levels in the partners׳ overlapping markets. The contribution of our paper is to put together a structural econometric model that is able to explicitly disentangle the demand and supply effects associated with an alliance between such airlines. The estimates from our structural econometric model do identify demand-increasing effects associated with the Delta/Continental/Northwest alliance, but statistically reject collusive behavior between the partners.