THE PRICE-INCREASING EFFECTS OF DOMESTIC CODE-SHARING AGREEMENTS FOR NON-STOP AIRLINE ROUTES

Abstract

This article assesses the impact of domestic code-sharing agreements on prices of non-stop flights in the United States. The article finds a positive and significant correlation between code-sharing agreements and the level of airfares, and considers this to be the outcome of two anticompetitive effects: (1) a “round table” effect, produced when the exchange of commercially sensitive information among code-sharing partners facilitates coordination and collusion; and (2) a “double marginalization” effect, produced when carriers use code sharing to add a mark-up over their marginal costs. The article identifies an increase in airfares charged by code-sharing partners of more than 5 percent attributable to the “round table” effect. On top of this, the article finds further price hikes attributable to the “double marginalization” effect: ticketing carriers involved in code-sharing flights charge fares more than 4 percent higher than fares set by their code-sharing partner and almost 10 percent higher than other airlines in the same market.