Network Effects of Alliances in International Transportation

Abstract

The aim of this study is to analyze the difference of network effects by alliance formation in international liner shipping and airline industries. First of all, the network economy by the alliances is placed in order from the viewpoint of economy of scale. After observing the changes of network service attributes by the alliance formation, the network effects are empirically analyzed on demand and supply sides. We conclude as follows. As it is very difficult for each airline to design freely the route structure to demonstrate the effect of aircraft size, the route of pursuing high frequent service to fulfill customer satisfactions is taken. For liner shipping, as well as for airlines, customers are acquired by increasing the number of service points and frequencies. However, an important variable of demand functions for liner shipping is average cost or average ship size, and the influences of service points and frequencies are relatively small.