Alderighi, M., Cento, A., Nijkamp, P., and Rietveld, P. (2005) Network competition: the coexistence of hub-and-spoke and point-to-point systems, Journal of Air Transport Management, Volume 11, Issue 5, September 2005, Pages 328-334

The paper identifies conditions under which asymmetric equilibria may exist when carriers compete in designing their network configurations in a game-theoretical framework. Two carriers are assumed here, which are allowed to play three different strategies: point-to-point, hub-and-spoke (HS) or multi-hub.

We find two main stable outcomes, which depend on the size of the internal market. First, when the internal markets are small, point-to-point network strategies are played by both carriers, while for a specific subset of parameters a collusive equilibrium in a hub-and-spoke configuration can be derived. Second, when the size of the internal markets is large, asymmetric configurations, where one carrier chooses a hub-and-spoke strategy and the other chooses a point-to-point strategy, are the only stable equilibria.

The result can be used to describe the co-existence of alternative business models that have recently emerged in the aviation industry: the established full-service model based on the hub-and-spoke system and the recent low-cost model based on the point-to-point system.