In this article we explore some possible anticompetitive effects of one par
ticular type of strategic alliance-common in the airline industry among oth
ers-that involves the sharing of production capacity. An offer to share an
existing facility can allow an incumbent to persuade a potential entrant no
t to build its own facility. We Establish conditions under which an agreeme
nt to share will be anticompetitive in the sense that, absent the agreement
, a more competitive outcome (i.e., entry with new capacity) would have obt
ained. Such alliances can reduce welfare even if the incumbent and entrant
will not be direct competitors.