The Econometric SocietyEdited by: Guido W. Imbens ⢠Print ISSN: 0012-9682 ⢠Online ISSN: 1468-0262
August 15, 2022
Econometrica: Nov, 1999, Volume 67, Issue 6
https://doi.org/10.1111/1468-0262.00084
p. 1407-1434
Ken Hendricks, Michele Piccione, Guofu Tan
We study a model in which two carriers choose networks to connect cities and compete for customers. We show that if carriers compete aggressively (e.g., Bertrandâlike behavior), one carrier operating a single hubâspoke network is an equilibrium outcome. Competing hubâspoke networks are not an equilibrium outcome, although duopoly equilibria in nonhub networks can exist. If carriers do not compete aggressively, an equilibrium with competing hubâspoke networks exists as long as the number of cities is not too small. We provide conditions under which all equilibria consist of hubâspoke networks.
