The price effects of international airline alliances

This paper provides evidence on the effect of international airline alliances on fares. The main finding is that alliance partners charge interline fares that are approximately 25 percent below those charged by nonallied carriers. According to our theoretical model, the main source of this fare reduction is the internalization of a negative externality that arises from the uncoordinated choice of interline "subfares" in the absence of an alliance. The paper also looks for evidence of an anticompetitive alliance effect in the gateway-to-gateway markets. While the point estimates show that an alliance between two previously competitive carriers would raise fares by about 5 percent, this effect is not statistically significant.