Ciliberto, Federico and Williams, Jonathan (2012): Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry.
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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:||15. Feb 2013 13:13|
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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)
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- 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)