Code-sharing and its effect on airline fares and welfare

Airlines frequently use code-share agreements allowing them to market seats on flights operated by partner airlines. Current studies argue that with complementary networks this generates positive welfare effects because fares for interline passengers who rely on the service of multiple airlines are supposed to fall. However, with codeshare agreements airlines can price discriminate between interline and other passengers. This might harm the latter which has been ignored so far. We show that code-share agreements can lead to welfare losses in the case of complementary networks.