Strategic alliances, shared facilities, and entry deterrence

In this article we explore some possible anticompetitive effects of one particular type of strategic alliance - common in the airline industry, among others - that involves the sharing of production capacity. An offer to share an existing facility can allow an incumbent to persuade a potential entrant not to build its own facility. We establish conditions under which an agreement to share will be anticompetitive in the sense that, absent the agreement, a more competitive outcome (i.e., entry with new capacity) would have obtained. Such alliances can reduce welfare even if the incumbent and entrant will not be direct competitors.

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