Research Statement
Xin (Jessie) Xie
Recently, major airlines have been extending their service networks via strategic alliances. My
current research mainly studies the anticompetitive impact of both U.S. domestic and
international airline alliances. In particular, my papers investigate the effects of airline alliances
on market entry deterrence and on alliance members’ price, cost, and markup using a recent
empirical approach for estimating dynamic games of entry and exit in the airline industry.
U.S. Domestic Airline Alliances
My job market paper examines how codesharing, a form of strategic alliances, by airlines affects
entry decisions of potential competitors. In particular, the paper uses a structural econometric
model to investigate whether codesharing between airlines in U.S. domestic air travel markets has
a deterrent effect on the entry of potential competitors. As a popular form of airline alliances,
codesharing allows each carrier in the alliance to sell tickets for seats on its partners’ airplane.
Previous studies have found evidence for the presence of entry-deterrence motives behind
codesharing alliances. In addition to re-examining this issue, our analysis also investigates
whether the entry-deterrence effect if found depends on the type of codesharing (Traditional
versus Virtual) and the identity of the carrier that is threatening to enter the relevant market. The
empirical results do suggest that codesharing between market incumbents has a market entry
deterrent effect and such effect varies by type of codesharing and identity of carriers.
International Airline Alliances
Airline alliance partners often want to extend cooperation to revenue sharing, which effectively
implies joint pricing of product. To explicitly cooperate on price, airlines must apply to U.S.
Department of Justice (DOJ) and Department of Transportation (DOT) for antitrust immunity
(ATI), which refers to the exemption from prosecution under antitrust laws. My second paper
investigates the effects of granting ATI on price, markup, and various measures of cost. In the
recent case of antitrust immunity application by five oneworld alliance members, the DOJ did not
support granting of immunity, arguing that immunity is not necessary for the alliance to yield net
benefits for consumers and alliance carriers. However, the DOT believed that there is sufficient
efficiency gains associated with granting the carriers antitrust immunity and thus approved the
application. Our empirical results show that the alliance with ATI did decrease the marginal cost
and airfare of its carrier members, even though their markup increased in markets where the
immune members each provides substitute products.
Future Research
My future research will focus on the investigation of the effects of airline alliances or mergers on
economic welfare. Such analysis should be necessary in that changes in welfare are driven not
only by airfare and cost but also by air market service quality. An example of this comes with the
recent merger between American Airlines and US Airways. Some argued that passengers will be
better off as a result of more choices and more competition. The analysis on this issue will
provide policymakers with more useful inferences.