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...

A major carrier operates one hub linking multiple non-hub cities. It forms an alliance with a low cost carrier whose nonstop service competes with its one-stop service. The alliance's joint profit is maximized by withdrawing the competing one-stop (nonstop) service when the major carrier's...