Airline network competition with low-cost carrier brand strategies

摘要

This paper investigates airline network competition with low-cost carrier (LCC) brandstrategies. Two competing hub carriers intend to establish an LCC to offer nonstop services onrim routes, equivalently each may choose a hub, mixed or point-to-point (ptp) network.Passengers horizontally (vertically) differentiate hub carriers’ full-services and LCCs’no-frill-services (one-stop and nonstop services). We find a unique equilibrium ofmixed-mixed (ptp-ptp) network pair when horizontal (vertical) differentiation is substantial;multiple equilibria including asymmetric network pairs when both differentiations are small;a hub-hub equilibrium exists only if operating cost differential between hub carriers and LCCsare sufficiently small and both differentiations are remarkably small. These results mayreflect current major airlines’ networking strategies. Welfare under various duopoly networkpairs are lower (higher) compared to a monopoly hub or mixed network when operating costdifferential are small (large). This has important policy implications for large entries into theairline industry.