segmentslowerspricesandpro tsonthatsegment.However,thenationalcarriercano setsomeofthelossesbyadjustingpricesonthen 2complementarysegmentswheredemandshaveincreased.Whenthesizeofthenetworkislargeenough,thehuboperator’soptimalresponsetoentryinaspokemarketisnottowithdrawits ightsfromthatmarket,eveniftheregionalcarrierstays.Asaresult,regionalcarriersareforcedtoexitandentryisdeterred.Thus,ahub-spokenetworkisacredibletoolfordeterringentry.

Empiricalevidenceillustratesthatairlinesusuallyoperateseparatehub-spokenetworksandcompetehead-to-headforthetra cbetweennon-hubcities,buthavealocalmonopolyonthetra ctoandfromtheirrespectivehubcities.Thisraisesanumberofinterestingquestions.Whydo rmschoosedi erenthubcitiesinsteadofsharingthesamehubcity?Whydoesasingle rmoperatemorethanonehub-spokenetwork?Doescompetitiongeneratetoomanyhubs?Domergersrepresentattemptsby rmstoexploiteconomiesofdensities?Ifso,howmany rmscantheindustrysupport?Toanswerthesequestions,theentireairlinenetworkneedstobetreatedasanequilibriumoutcome.

Hendricks,PiccioneandTan(1999)investigatetheconditionsunderwhichhub-spokenetworksareanequilibriumcon gurationinaduopoly.Inthemodeltwocarrierschoosenetworkstoconnectcitiesandcompeteforcustomers.Theyshowthatifcarrierscompeteforcustomersaggressively(e.g.,Bertrand-likebehavior),onecarrieroperatingasinglehub-spokenetworkisanequilibriumoutcome.Ifcarriersdonotcompeteaggressively(e.g.,implicitcollusionviafrequent yerprograms,andproductdi erentiation),anequilibriumwithcompetinghub-spokenetworksexistsprovidedthatthenumberofcitiesisnottoosmall.Theyalsoprovidesu cientconditionsunderwhichallequilibriaconsistofhub-spokenetworks.IntheU.S.,airlinesoperatenetworksthatappeartobepredominatelyhub-spoke.However,theycontainmorethanonehub-city,aswellassub-networksthatarepoint-to-pointoperations.Thismayre ectdistancefactorsthatleadcarrierstooperateregionalhub-spokenetworks,orotherfactorssuchasdemandasymmetriesandschedulingconstraints.FurtherresearchisneededtoexplorethetheoreticalimplicationsofrelaxingtheassumptionsoftheHendricks,Piccione,andTan(1999)model.

Anotherinterestingandimportantquestionisthatofinternationalairlineal-liancesthatareformedtotakeadvantageofnetworkcomplementarities.Becauseofnationalregulatoryrestrictionsacrosscountries,foreigncarrierscannotpickuppoint-to-pointpassengersondomesticroutes.Aninternationaltravelleroftenneedstocombineseveralsegmentsfromdi erentairlinestogether.Therearee ciencygainsfromcooperationamongtheairlinesbyinterconnectingtheirexistingnetworks,throughbettercoordinationoftheirconnecting ights,andbyjointadvertisingand