The price effects of international airline alliances

This paper provides evidence on the effect of international airline allianc es on fares. The main finding is that alliance partners charge interline fa res that are approximately 25 percent below those charged by nonallied carr iers. According to our theoretical model, the main source of this fare redu ction 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 i n the gateway-to-gateway markets. While the point estimates show that an al liance between two previously competitive carriers would raise fares by abo ut 5 percent, this effect is not statistically significant.