Strategic Choice of Alliance Membership under Local Competition and Global Networks

We propose a game theoretic model to analyse the partnership formation for two competing local airlines and two global airline alliances. We allow each airline to join any of the two alliances and each alliance to take either or both airlines. We find that multiple equilibrium outcomes may exist if these four players are involved in a simultaneous game. On the other hand, if a sequential game is played, we show that when either the market size or the product substitutability is relatively small, local airlines will join the same alliance in equilibrium. Otherwise, local airlines will stay independent.