Code-Sharing, Price Discrimination And Welfare Losses

Airlines frequently use code-share agreements allowing each other to market seats on flights operated by partner airlines. Regulation may allow code-share agreements with antitrust immunity (cooperative price setting), or without antitrust immunity, or not at all. Author compare relative welfare effects of these regulation regimes for complementary airline networks. A crucial point is that such agreements are used to identify and price discriminate interline passengers. It finds that interline passengers always benefit from code-share agreements while non-interline passengers are worse off. Furthermore, it shows that the second effect questions the overall usefulness of code-share agreements from a welfare perspective.