Issue: Summer 1997
Pages: pp. 291-303
Authors: Ken Hendricks, Michele Piccione, and Guofu Tan
Title: Entry and Exit in Hub-Spoke Networks
Abstract: We offer an explanation for why regional carriers may not survive in hub-spoke networks. When a regional carrier and a hub operator compete in a spoke market, both will suffer losses in that market. But if the hub operator exists in the spoke market, its profits in connecting markets will fall. As long as the number of such markets is large enough, it is a dominant strategy for the hub operator not to exit from the spoke market. The regional carrier is then forced to exit, assuming fixed costs are not sunk.
Air Transportation (airlines) (L930)
Market Structure, Firm Strategy, and Market Performance: Oligopoly and
Other Imperfect Markets; monopolistic competition; contestable markets
(L130)
Firm Organization and Market Structure: Markets vs.
Hierarchies; Vertical Integration (L220)
Economics of Transportation (6150)
Microeconomics--Theory
of Firm and Industry under Imperfectly Competitive Market Structures
(0226)
Market Structure: Industrial Organization and Corporate
Strategy (6110)