Ciliberto, Federico and Williams, Jonathan (2012): Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry.
This is the latest version of this item.
Download (866kB) | Preview
We provide empirical evidence to support the hypothesis that multimarket contact facilitates tacit collusion in the US airline industry using two complementary approaches. First, we show that the more extensive is the overlap in the markets that the two firms serve, i) the more firms internalize the effect of their pricing decisions on the profit of their competitors by reducing the discrepancy in their prices, and ii) the greater the rigidity of prices over time. Next, we develop a flexible model of oligopolistic behavior, where conduct parameters are modeled as functions of multimarket contact. We find i) carriers with little multimarket contact do not cooperate in setting fares, while we cannot reject the hypothesis that carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.
|Item Type:||MPRA Paper|
|Original Title:||Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry|
|Keywords:||Multi-Market Contact, Collusion, Differentiated Products, Airport Facilities, Airline Industry, Screening Test, Price Rigidity|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets|
|Depositing User:||Federico Ciliberto|
|Date Deposited:||18. Jun 2012 02:53|
|Last Modified:||03. Jul 2015 10:44|
Ashenfelter, Orley, and Daniel Sullivan (1987) "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry", Journal of Industrial Economics, 35(4), 483-498.
Baker, Jonathan, and Timothy Bresnahan (1988) "Estimating the Residual Demand Curve Facing a Single Firm", International Journal of Industrial Organization, 6(3), 283-300.
Bernheim, Douglas B., and Michael D. Whinston (1990) "Multimarket Contact and Collusive Behavior", Rand Journal of Economics, 21(1), 1-26.
Berry, Steven (1990) "Airport Presence as Product Differentiation", American Economic Review P&P, 80(2), 394-399.
Berry, Steven (1992) "Estimation of a Model of Entry in the Airline Industry", Econometrica, 60(4), 889-917.
Berry, Steven (1994) "Estimating Discrete-Choice Models of Product Differentiation", Rand Journal of Economics, 25(2), 242-262.
Berry, Steven, James Levinsohn, and Ariel Pakes (1995) "Automobile Prices in Market Equilibrium", Econometrica, 63(4), 841-890.
Berry, Steven, Michael Carnall, and Pablo Spiller (2006) "Airline Hubs: Costs, Markups, and the Implications of Costumer Heterogeneity", in Darin Lee (ed.), Advances in Airline Economics, Competition Policy and Antitrust, Vol. I, Elsevier.
Berry, Steven, and Panle Jia (forthcoming). "Tracing the Woes: An Empirical Analysis of the Airline Industry", American Economic Journal: Microeconomics.
Berry, Steven. and Philip Haile (2010) "Identification in Differentiated Products Markets Using Market Level Data", Working Paper.
Bilotkach, Volodymyr (2010) "Multimarket Competition and Intensity of Competition: Evidence from an Airline Merger", Working Paper.
Borenstein, Severin (1989) "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry", Rand Journal of Economics, 20(3), 344-365.
Brander, James, and Anming Zhang (1990) "Market Conduct in the Airline Industry: An Empirical Investigation", Rand Journal of Economics, 21(4), 567-583.
Brander, James, and Anming Zhang (1993) "Dynamic Oligopoly Behaviour in the Airline Industry", International Journal of Industrial Organization, 11, 407-435.
Bresnahan, Timothy (1981) "Departures from Marginal-Cost Pricing in the American Automobile Industry", Journal of Econometrics, 17(2), 201-227.
Bresnahan, Timothy (1982) "The Oligopoly Solution Concept is Identi�ed", Economic Letters, 10(1-2), 87-92.
Bresnahan, Timothy (1987) "Competition and Collusion in the American Automobile Oligopoly: The 1955 Price War", Journal of Industrial Economics, 35(4), 457-482.
Brueckner, Jan, Nichola Dyer, and Pablo Spiller (1992) "Fare Determination in Airline Hub-and-Spoke Networks", Rand Journal of Economics, 23(3), 309-333.
Brueckner, Jan, and Pablo Spiller (1994) "Economies of Tra¢ c Density in the Deregulated Airline Industry", Journal of Law and Economics, 37(2), 379-415.
Busse, Meghan (2000) "Multimarket Contact and Price Coordination in the Cellular Telephone Industry", Journal of Economics & Management Strategy, 9(3), 287-320.
Ciliberto, Federico, and Elie Tamer (2009) "Market Structure and Multiple Equilibria in the Airline Industry", Econometrica, 77(6), 1791-1828.
Ciliberto, Federico, and Elie Tamer (2010) "Inference on Market Power in Markets with Multiple Equilibria", Working Paper.
Ciliberto, Federico and Jonathan Williams (forthcoming) "Limited Access to Airport Facilities and Market Power in the Airline Industry", Journal of Law and Economics.
Evans,William, and Ioannis Kessides (1994) "Living by the �Golden Rule�: Multimarket Contact in the U.S. Airline Industry", Quarterly Journal of Economics, 109(2), 341-366.
Fernandez, Nerea, and Pedro Marin (1998) "Market Power and Multimarket Contact: Some Evidence from the Spanish Hotel Industry", Journal of Industrial Economics, 46(3), 301-315.
Fershtman, Chaim, and Ariel Pakes (2000) "A Dynamic Oligopoly with Collusion and Price Wars", Rand Journal of Economics, 31(2), 207-236.
Gasmi, Farid, Laffont, Jean-Jacques La¤ont, and Quang Vuong (1992) "Econometric Analysis of Collusive Behavior in a Soft-drink Market", Journal of Economics & Management Strategy, 1(2), 277-311.
Goldberg, Pinelopi (1995) "Product Di¤erentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry", Econometrica, 63(4), 891-951.
Griliches, Zvi, and Jacques Mairesse (1995) "Production Functions: The Search for Identification", Working Paper.
Harrington, Joseph (2008) "Detecting Cartels", in Paolo Buccirossi (ed.), Handbook in Antitrust Economics, MIT Press.
Hendel, Igal, and Aviv Nevo (2006) "Measuring the Implications of Sales and Consumer Inventory Behavior", Econometrica, 74(6), 1637-1673.
Hendricks, Kenneth, and Robert Porter (1989) "Collusion in Auctions", Annales de�Economie et de Statistique, 15/16, 217-230.
Jacquemin, Alexis, and Margaret Slade (1989) "Cartels, Collusion, and Horizontal Merger", in Richard Schmalensee and Robert Willig (ed.), Handbook of Industrial Organization, Vol. II, Elsevier.
Jans, Ivette, and David Rosenbaum (1997) "Multimarket Contact and Pricing: Evidence from the U.S. Cement Industry", International Journal of Industrial Organiza- tion, 15(3), 391-412.
Lau, Lawrence (1982) "On Identifying the Degree of Competitiveness from Industry Price and Output Data", Economic Letters, 10(1-2), 93-99.
Lederman, Mara (2007) "Do Enhancements to Loyalty Programs Affect Demand? The Impact of International Frequent Flyer Partnerships on Domestic Airline Demand", Rand Journal of Economics, 38(4), 1134-1158.
Lederman, Mara (2008) "Are Frequent Flyer Programs a Cause of the �Hub Premium�?", Journal of Economics and Management Strategy, 17(1), 35-66.
Manski, Charles (1993) "Identi�cation of Endogenous Social Effects: The ReflectionProblem", Review of Economic Studies, 60(3), 531-542.
Miller, Amalia (forthcoming) "Did the Airline Tari¤ Publishing Case Reduce Collusion?" Journal of Law and Economics.
Nevo, Aviv (1998) "Identi�cation of the Oligopoly Solution Concept in a Di¤erentiated-Product Industry", Economics Letters, 59(3), 391-395.
Nevo, Aviv (2001) "Measuring Market Power in the Ready-to-Eat Cereal Industry", Econometrica, 69(2), 307-342.
Panzar, John, and James Rosse (1987) "Testing for �Monopoly�Equilibrium", Journal of Industrial Economics, 35(4), 443-456.
Parker, Philip, and Lars-Hendrik Roller (1997) "Collusive Conduct in Duopolies: Multimarket Contact and Cross-Ownership in the Mobile Telephone Industry", Rand Journal of Economics, 28(2), 304-322.
Peters, Craig (2006) "Evaluating the Performance of Merger Simulation: Evidence from the U.S. Airline Industry", Journal of Law and Economics, 49(2), 627-649.
Porter, Robert (1983) "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886", Bell Journal of Economics, 14(2), 301-314.
Porter, Robert (2005) "Detecting Collusion", Review of Industrial Organization, 26(2), 147-167.
Porter, Robert, and J. Douglas Zona (2008) "Collusion", in W.D. Collins (ed.), Issues in Competition Law and Policy, American Bar Association Section of Antitrust Law.
Reiss, Peter, and Pablo Spiller (1989) "Competition and Entry in Small Airline Markets", Journal of Law and Economics, 32(2), 179-202.
Rosse, James (1970) "Estimating Cost Function Parameters without Using Cost Data: Illustrated Methodology", Econometrica, 38(2), 256-275.
Salvo, Alberto (2010) "Inferring Market Power under the Threat of Entry: The Case of the Brazilian Cement Industry", Rand Journal of Economics, 41(2), 326-350.
Singal, Vijay (1996) "Airline Mergers and Multimarket Contact", Managerial and Decision Economics, 17(6), 559-574.
Verboven, Frank (1996) "International Price Discrimination in the European Car Market", Rand Journal of Economics, 27(2), 240-268.
Waldfogel, Joel, and Julie Wulf (2006) "Measuring the Effect of Multimarket Contact on Competition: Evidence from Mergers Following Radio Broadcast Ownership Deregulation", Contributions to Economic Analysis & Policy, 5(1).
Weyl, Glen (2009) "Slutsky Meets Marschak: The First-Order Identi�cation of Multiproduct Production", Working Paper.
White, Lawrence (2001) "Lysine and Price Fixing: How Long? How Severe?", Review of Industrial Organization, 18(1), 23-31.
Available Versions of this Item
Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry. (deposited 12. Sep 2010 09:58)
Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry. (deposited 17. Dec 2010 00:13)
Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry. (deposited 09. Jun 2012 03:23)
- Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry. (deposited 18. Jun 2012 02:53) [Currently Displayed]
- Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry. (deposited 09. Jun 2012 03:23)
- Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry. (deposited 17. Dec 2010 00:13)