Vertical Differentiation and Airline Alliances : The Effect of Antitrust Immunity

This paper explores, both theoretically and empirically, the impact of granting antitrust immunity (ATI) to airline alliances in a novel and realistic framework characterized by vertically-differentiated air services. Our theoretical model suggests that non-ATI alliances produce an up-market movement yielding higher quality services at higher fares, whereas ATI alliances induce a down-market movement. Using data for fares on the transatlantic market from the Official Airlines Guide (OAG) corresponding to the period 2010-2017, our theoretical findings are empirically confirmed except for the effect of ATI alliances on fares. Finally, our results (both theoretical and empirical) indicate that alliances tend to concentrate a higher proportion of frequencies on high-quality routings, although airport congestion could partially compensate this effect