Anticompetitive Effects

1. Potential for market foreclosure VALUE CAPTURE

Market foreclosure consists in the denial of access to competitors of inputs or consumers needed to compete in
the market from the dominance position of the airlines enjoying antitrust immunity from regulators
2. Potential for collusion
Under antitrust immunity between allied airlines, collusion is allowed de facto within the alliance but,
additionally, the extent of market contact between firms, increases with their growth in scope.
The potential negative effects of a potential triopoly of Oneworld, SkyTeam, and Star Alliance.
3. Network development
Expansion of the effects of the hub and-spoke network structure, in which more markets are served by
connecting flights, expanding the network coverage compared to a point-to-point network, but also dissuading
future non-stop services between those markets.
Partner alliances join their hub-and-spoke networks and this hinders entry of the member airlines with new non-
stop services between the markets in the network.
4. Multiple listing on distribution channels
Same code sharing route appears in the online travel agencies and computer reservation systems (CRS).
In CRS the effect is to push down potential competitors from the first screen, from where most of the travel
agency reservations are made.
 Alliance Failures
 Alliances come at a high financial cost as well as risk to reputation from failure. Alliance breaking/switching
has costed Airlines in range of $40 M - $250M.
Alliances involve disruption with such activities as relocation and general harmonization and integration of
information technology and general systems.
 Although firms enter agreements for the long-term, the desired mutual benefits may not always follow and
can lead to premature termination.
Successful alliances are highly evolutionary and go through a sequence of interactive cycles of learning,
reevaluation and readjustment
 A gap between expectation and intermediate outcomes is a major reason for failure.
Given this, it is important that parties to an alliance recognize it early in the collaboration and try to re-
evaluate each other’s position. This lessens the likelihood of misunderstanding among partners, which
ultimately contributes to high instability and failure rates.