Work

Network Competition in the Airline Industry: An Empirical Framework

Year: 2026

Type: article

Abstract: ABSTRACT This article proposes an empirical framework and a novel equilibrium concept to analyze network competition in the airline industry. A two‐stage entry model links direct and indirect flights, using a technological relationship estimated from data to mimic the hub‐and‐spoke network. It employs revealed‐preference arguments to bound fixed cost parameters, estimated using state‐of‐the‐art econometric methods. Ignoring network externality undervalues the benefits of additional flights by 13.2% and leads to 21.5% fewer one‐stop flights. A hypothetical merger between Alaska and Virgin in 2014 could increase consumer surplus as the merged airline would offer more flights with muted post‐merger prices.

Source: The RAND Journal of Economics

DOI: 10.1111/1756-2171.70031

Authors: Zhe Yuan, Panle Jia Barwick

Institutions: Zhejiang University, Center for Economic and Policy Research, National Bureau of Economic Research, University of Wisconsin–Madison

Language: English

Topic: Aviation Industry Analysis and Trends

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funders: National Natural Science Foundation of China, Zhejiang University, Fundamental Research Funds for the Central Universities

Awards: G268335126, G6307227221