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The effects of major U.S. domestic airline code sharing and profit sharing rule
Author(s) -
Shen Caixia
Publication year - 2017
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12202
Subject(s) - commission , profit (economics) , profit sharing , code (set theory) , business , marginal cost , microeconomics , cost sharing , industrial organization , economics , computer science , finance , set (abstract data type) , law , political science , programming language
This paper presents a structural model of code sharing among major U.S. domestic airlines and estimates a profit‐sharing rule. The profit‐sharing rule between partner firms in code sharing is estimated at 0.92, which suggests that the operating carrier acquires around 92% of profits from a round‐trip, and the marketing carrier retains 8% as a commission fee. Meanwhile, the economies of code sharing reduces marginal cost, and firms are able to price at higher markups. This implies that demand increases and consumers have larger surplus if code sharing creates new products.