ENTRY AND EXIT IN HUB-SPOKE NETWORKS

We offer an explanation for why regional carriers may not survive in h ub-spoke networks. When a regional carrier and a hub operator compete in a spoke market, both will suffer losses in that market. But if the hub operator exits in the spoke market, its profits in connecting mark ets will fall. As long as the number of such markets is large enough, it is a dominant strategy for the hub operator not to exit from the sp oke market. The regional carrier is then forced to exit, assuming fixe d costs are not sunk.