Alliances and entry in a simple airline network

Abstract

This paper constructs an entry and code-sharing alliances game to demonstrate that the alliance between the incumbent carriers may play a significant role of entry deterrence in a given airline network. We show that incumbents can use the alliances as a credible threat to deter the entry of the potential entrants who have no significant cost advantage. This finding suggests that the role of the alliance in entry deterrence should be considered carefully when governments promote and maintain competition in the deregulated airline network markets.