A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence
14 Pages Posted: 29 Jul 2019
Date Written: Juny 1, 2010
In a hub-and-spoke network, the profit function of an airline is supermodular with respect to the airline's own entry decisions for different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy for deterring the entry of competitors. This paper presents an empirical dynamic game of airline network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with special attention to empirical evidence regarding the entry deterrence motive.
Keywords: Dynamic games, Airline networks, Hub-and-spoke, Entry deterrence, Supermodularity
JEL Classification: C10, C35, C63, C73, L10, L13, L93
Suggested Citation: Suggested Citation