Abstract
The “size” of a production facility has different specific meanings depending on the nature of the business decision at issue. We present a general theoretical model illustrating the profit-maximizing firm's interrelated choice of plant size in long-run, medium-run and short-run contexts. The model is then estimated for U.S. airline hubs. The results suggest that competition operates primarily via the capacity (long-run) size decision. A game-theoretic simulation based upon the results is consistent with the argument that the smaller of two hubs sharing an airport is at a significant competitive disadvantage.
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Butler, R.V., Huston, J.H. The Meaning of Size: Output? Scope? Capacity? The Case of Airline Hubs. Review of Industrial Organization 14, 51–64 (1999). https://doi.org/10.1023/A:1007764008391
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DOI: https://doi.org/10.1023/A:1007764008391