Product differentiation and network optimality

E. Pels

doi:10.1016/j.tranpol.2021.05.029

Product differentiation and network optimality

E. Pels

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

This paper studies airline network optimality. We modify existing models (Brueckner and Spiller (1991) and Zhang (1996)) to explain airline network optimality, using heterogeneity and different market sizes. Dropping small destinations from a hub-spoke network may increase overall profits and total welfare. But consumer surplus is always higher with a full network. This leads to a policy dilemma: the airline may want to drop smaller destinations, while the local economy benefits from these destinations. The level of substitution hardly has an effect.

Original language	English
Pages (from-to)	415-429
Number of pages	15
Journal	Transport Policy
Volume	110
Early online date	18 Jun 2021
DOIs	https://doi.org/10.1016/j.tranpol.2021.05.029
Publication status	Published - Sept 2021

Funding

The author would like to thanks participants of the ATRS conference and anonymous referees for valuable comments.

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10.1016/j.tranpol.2021.05.029

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title = "Product differentiation and network optimality",

abstract = "This paper studies airline network optimality. We modify existing models (Brueckner and Spiller (1991) and Zhang (1996)) to explain airline network optimality, using heterogeneity and different market sizes. Dropping small destinations from a hub-spoke network may increase overall profits and total welfare. But consumer surplus is always higher with a full network. This leads to a policy dilemma: the airline may want to drop smaller destinations, while the local economy benefits from these destinations. The level of substitution hardly has an effect.",

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AB - This paper studies airline network optimality. We modify existing models (Brueckner and Spiller (1991) and Zhang (1996)) to explain airline network optimality, using heterogeneity and different market sizes. Dropping small destinations from a hub-spoke network may increase overall profits and total welfare. But consumer surplus is always higher with a full network. This leads to a policy dilemma: the airline may want to drop smaller destinations, while the local economy benefits from these destinations. The level of substitution hardly has an effect.

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DO - 10.1016/j.tranpol.2021.05.029

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EP - 429

JO - Transport Policy

JF - Transport Policy

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Product differentiation and network optimality

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