Journal of Business & Economic Policy

ISSN 2375-0766 (Print), 2375-0774 (Online) DOI: 10.30845/jbep

Entry, Stay or Exit: A Dynamic Model of Route Arrangements under Code-Share Alliances in the U.S. Airline Industry
Angela Yan Du

Code-sharing is one of the most important and popular alliances in the U.S. airline industry since 1990s. Under code-sharing, partner firms merge their computerized reservation systems and benefit from their expanded networks and schedule frequency without operating additional aircraft, gaining exposure in markets where they do not operate directly but participate via display of their flight numbers. As a result, airlines are able to generate greater passenger volumes, resulting in the lower marginal operating cost. Even though previous studies have extensively examined code-share alliances either empirically or theoretically, no paper has so far theoretically addressed the code-share route arrangements dynamically under the airline network framework. To fill this gap, this paper develops a dynamic game theoretical model to investigate the strategic decisions of flight route arrangements under code-share network partnership. We derive three Nash equilibria: first, when airline carriers decide to enter a code-share partnership; second, after entering into code-share agreement, when carriers decide any specific route to continue to stay code-shared; and third, when carriers decide any specific route to exit from code-sharing.

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