This paper analyzes partnerships between foreign and domestic firms as a source of signaling advantages, considering the case of virtual codesharing in aviation. Virtual codesharing is an important type of cooperative agreement between airlines that does not change any real product attributes and hence provides the opportunity to identify this signaling effect. Roughly 75% of the flights in trans-Atlantic and Pacific markets involves codesharing. Typically, the consumer buys the ticket with the domestic airline, while a foreign airline operates the flight. Analyzing individual-level choice data from a representative sample of Australian air travelers, we find that the average consumer is willing to a pay a premium between 4 and 5.5% of the ticket price when a flight by a foreign carrier is codeshared with the national carrier Qantas. When flying to a less familiar destination, risk averse consumers are willing to pay a premium about two times higher than non-risk averse consumers, suggesting that partnerships have a strong impact on consumer valuation through reducing perceived risks and uncertainties associated with alien carriers. By this mechanism, home country bias may spillover to foreign partners of domestic firms.
|Number of pages||18|
|Journal||Journal of Economic Behavior and Organization|
|Early online date||29 Nov 2021|
|Publication status||Published - Jan 2022|
Bibliographical noteFunding Information:
We would like to thank the University of Western Australia to enable us to collect data in their Pureprofile Australia panel. We thank seminar and conference participants in Amsterdam, Hong Kong, Jerusalem and Seoul for useful comments. Any remaining errors are our own. Erik Verhoef is a fellow of the Tinbergen Institute.
© 2021 The Author(s)
- Airline codesharing
- Aviation industry
- Consumer choice behavior
- Home country bias
- Marketing partnerships
- Quality signaling