Network Effects of Air-travel Demand
نویسندگان
چکیده
As demand increases, airline carriers often increase flight frequencies to meet the larger flow of passengers in their networks, which reduces passengers’ schedule delays and attracts more demand. Focusing on the “network effects”, this paper develops and estimates a structural model of the U.S. airline industry. Compared with previous studies, the model implies higher cost estimates, which seem more consistent with the unprofitability of the industry; below-marginalcost pricing becomes possible and appears on many routes. I also study airline mergers and find that the network effects can be the main factor underlying their profitability.
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