Network effects, heterogeneous time value and network formation in the airline market

Hub congestion pricing: Discriminatory passenger charges

“…410-2011-0569). 21 In the airline literature, it is well known that higher frequency on a route gives passengers a wider choice of departure/arrival times and thus reduces the cost of "schedule delay," the difference between the desired and actual departure/ arrival times (e.g., Brueckner, 2004, Heimer and Shy, 2006, Kawasaki, 2008. See Silva et al (2014) for a related analysis that incorporates this frequency effect.…”

A Framework for Modeling "Real-Life" Airline Networks

“…Third, we find that establishing a hub may not deter entry by a firm offering higher quality non-stop service, which is somewhat unlike findings of Oum et al (1995) 1 . Kawasaki (2008), while differentiating consumers by their value of time as we do here, still constrains airlines to the either-or problem. We achieve these results by recognizing the quality difference between the non-stop and one-stop flights and introducing vertical product differentiation into the model.…”

“…Our analysis differs from the literature on network choice by the airline(s) in the following respects. First and foremost, we do not constrain the airline's choice to operating either a hub-and-spoke or a point-to-point network, as done, for example, in Brueckner and Zhang (2001), Pels et al (2000), Brueckner (2004), Gillen (2006), and Kawasaki (2008) but allow even the monopoly airline to operate both one-stop and non-stop services. Second, unlike in Hendricks et al (1995), where a monopolist choosing a network to connect a number of cities selects either a hub-and-spoke or a fully connected (point-to-point) network depending on the level of cost savings produced by the former, we find a region of cost differences allowing the monopolist to operate a mixed network.…”

Mutual influence across routes using a common airport: The case of the domestic market in Japan

“…A demand or supply shock on a route may spill over to other routes serving the same airport through, for example, economies of traffic density (Brueckner and Spiller, 1994;Caves et al, 1984), 'demand side network effects' regarding departure times (Encaoua et al, 1996) or flight frequencies (Brueckner, 2004;Kawasaki, 2008), and airport congestion (Mayer and Sinai, 2003). These examples include both the positive and negative effects that an increase in traffic on a route has on the traffic volumes on routes serving the same airport.…”