The effects of major U.S. domestic airline code sharing and profit sharing rule

Abstract

This paper presents a structural model of code sharing among major U.S. domestic airlines and estimates a profit‐sharing rule. The profit‐sharing rule between partner firms in code sharing is estimated at 0.92, which suggests that the operating carrier acquires around 92% of profits from a round‐trip, and the marketing carrier retains 8% as a commission fee. Meanwhile, the economies of code sharing reduces marginal cost, and firms are able to price at higher markups. This implies that demand increases and consumers have larger surplus if code sharing creates new products.

Bottleneck Co-ownership as A Regulatory Alternative: Evidence from Airline Industry

“…Our empirical setting adopts a discrete choice model for consumer demand and an oligopolistic airline supply side as in Shen (2017). The counterfactual analysis is done under the assumption of disintegration.…”

Subcontracting Network Formation Among U.S. Airline Carriers*

“…6 In our paper, we study airlines' market entry and subcontracting decisions together shedding new light on the role of interdependency in market entry. In addition, our paper is related to the literature on the price impact of domestic code-sharing in the U.S. airline industry (Bamberger et al [2004]; Armantier and Richard [2006]; Gayle [2008]; Ito and Lee [2007]; Gayle [2013]; Shen [2017]), a cooperative relationship among airline carriers, controlled for in our analysis of subcontracting relationships. 7 The rest of the paper is organized as follows.…”

“…This research focuses on how the implementation of code-sharing by airlines affects ticket prices. In addition,Ito and Lee [2007],Gayle [2013] andShen [2017], and focus on the distinction between traditional code-sharing and virtual code-sharing.…”