Firms’ Markup, Cost, and Price Changes when Policymakers Permit Collusion: Does Antitrust Immunity Matter?

Gayle, Philip and Xie, Xin (2018): Firms’ Markup, Cost, and Price Changes when Policymakers Permit Collusion: Does Antitrust Immunity Matter? Forthcoming in: Journal of Economic Behavior & Organization

Abstract

Airlines wanting to cooperatively set prices for their international air travel service must apply to the relevant authorities for antitrust immunity (ATI). Whether consumers, on net, benefit from a grant of ATI to partner airlines has caused much public debate. This paper investigates the impact of granting ATI to oneworld alliance members on their price, markup, and various measures of cost. The evidence suggests that implementation of the oneworld alliance without ATI did not have a statistically significant impact on the markup of products offered by the members, and there is no evidence that the subsequent grant of ATI to various members resulted in higher markups on their products. We find evidence suggesting that the grant of ATI facilitated a decrease in partner carriers’ marginal and fixed costs. Furthermore, member carriers’ price did not increase (decreased) in markets where their services do (do not) overlap, implying that consumers, on net, benefit from the grant of ATI in terms of price changes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Airline Competition; Strategic Alliances; Antitrust Immunity
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation

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