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Abstract:
We empirically test the idea that Chapter 11 bankruptcy filings are the result of wars of attrition over capacity cutbacks that end with one of the competitors being unable to meet its debt obligations. We look at changes in price and capacity during and after a Chapter 11 bankruptcy. We estimate in-bankruptcy price changes ranging from negative 16 to positive 1.4 percent. We find much less heterogeneity in the post-bankruptcy period: all bankrupt firms return to their pre-bankruptcy levels or higher. We relate the observed pricing behavior to capacity cutbacks. Bankrupt carriers significantly reduce capacity both during and following a bankruptcy filing, while competitors keep, or even increase, capacity. The reductions in capacity and the increase in prices after a Chapter 11 filing, provide support for the war of attrition hypothesis. Our findings that the bankrupt firms’ prices are higher post-bankruptcy suggest that airlines do not lower operating costs while in bankruptcy. We provide some direct evidence of this result.

Airline Industry, Bankruptcy, Product Market Competition, Chapter 11, War of Attrition, Capacity Reduction

Abstract:
This paper investigates the large and unexpected increase in cigarette prices that followed the 1997 Master Settlement Agreement (MSA). We integrate key features of rational addiction theory into a discrete-choice model of the demand for a differentiated product. We find that, following the MSA, firms set prices on a more elastic region of their demand curves. Using these estimates, we predict prices that would be charged under a variety of industry structures and pricing rules. Under the assumptions of firms’ perfect foresight and constant marginal costs, we fail to reject the hypothesis that firms collude on a dynamic pricing strategy.

Cigarettes, Master Settlement Agreement, Demand, Collusion, Rational Addiction.

Abstract:
We develop a partial equilibrium, perfectly competitive framework of a (potentially) vertically oriented industry. There are three types of firms: upstream firms that use primary factors to produce an intermediate; downstream firms that use primary factors and intermediates to produce a final good; and vertically integrated firms that do both. We establish conditions under which vertically integrated firms exist and outsource (part of) the production of the intermediate input. We study the changes in industry configurations resulting from changes in costs and demand.

Competitive Industry, Vertical Integration, Outsourcing

Abstract:
We use data from the U.S. airline industry to investigate whether firms operating under Chapter 11 protection systematically and permanently restructure their real product-market operations by changing the variety and the quality of the products that they offer. We further analyze whether the bankrupt firm’s competitors introduce and maintain changes in their product market. We find that bankrupt firms significantly decrease the frequency of flights between airports, the number of destinations that they serve, and the probability that they provide non-stop service in a particular market. These changes outlive the firm’s bankruptcy period. We do not find evidence of statistically and economically significant changes by the airline’s competitors along any of the dimensions above, except for a significant increase in the number of destinations the competitors serve. With regard to the quality of services, we find that the bankrupt firms temporarily lower the percent of cancelled flights and the percent of flights with a delay upon arrival of at least 15 minutes. Both of these changes are temporary, as cancellations and delays return to pre-bankruptcy levels once the bankrupt firm emerges from bankruptcy court protection. Finally, we find that the age of the fleet flown by bankrupt firms declines. This change is permanent.

bankruptcy, product quality, product market competition

Abstract:
I study the slow adoption of ring-spinning in Great Britain's cotton industry at the end of the 19th century, which has been used as evidence of British entrepreneurs' declining efficiency and conservatism (Musson [1959], Aldcroft, [1964], Lazonick [1981, 1981b]). To this purpose I use firm-level data from all of Lancashire's cotton firms over several years. The data are from the Worrall's Cotton Spinners' and Manufacturers' Directories for the years 1885, 1886-1887, 1890, 1894, 1902, and 1910.

First, I show that the vertical organization of the industry, with its firms specializing in spinning or weaving, did not act as an impediment to the adoption of the ring-spinning technology, as was argued by Lazonick. In particular, I show the following: i) non-integrated firms were the first to adopt rings in Great Britain; ii) the large majority of firms that adopted rings were incumbents; iii) vertically integrated firms that were spinning only either twist or weft yarn were still in existence in 1910; and iv) only a negligible number of firms changed their organizational structure upon adopting ring spinning. I also show that a large fraction of firms installed very small numbers of ring spindles upon the adoption of ring spinning, suggesting that firms were slowly adopting ring spindles to replace old mule spindles rather than transitioning over to ring spinning at a single point in time.

Then, I show that the rate at which vertically integrated firms adopted rings suddenly accelerated after 1902. I interpret this as evidence that British entrepreneurs were fully aware of the technological complementarities between rings and automatic looms. These complementarities could only be fully exploited by vertically integrated firms.

Ring Spinning, Technology Adoption, Cotton Industry, Lancashire, Vertical Integration, Specialization

Abstract:
I investigate whether organizational changes affect investment decisions using evidence from the hospital industry in the United States. During the 1990s, hospitals and physicians have reorganized the way they trade with each other, vertically consolidating the provision of healthcare services. I provide empirical evidence that hospitals adopting the new organizational forms add more healthcare services over time than hospitals that are independent of their physicians. I also find that when the average percentage of county population covered by each HMO increases, the differences in investment behavior between vertically consolidated and independent hospitals become larger.

Abstract:
We provide a practical method to estimate the payoff functions of players in complete information, static, discrete games. With respect to the empirical literature on entry games originated by Bresnahan and Reiss (1990) and Berry (1992), the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions. We allow the effects that the entry of each individual airline has on the profits of its competitors, its "competitive effects," to differ across airlines. The identified features of the model are sets of parameters (partial identification) such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data.

We apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the U.S. airline industry. We find evidence of heterogeneity across airlines in their profit functions. The competitive effects of large airlines (American, Delta, United) are different from those of low cost carriers and Southwest. Also, the competitive effect of an airline is increasing in its airport presence, which is an important measure of observable heterogeneity in the airline industry. Then we develop a policy experiment to estimate the effect of repealing the Wright Amendment on competition in markets out of the Dallas airports. We find that repealing theWright Amendment would increase the number of markets served out of Dallas Love.

Entry Models, Inference in Discrete Games, Multiple Equilibria, Partial Identification, Airline Industry, Firm Heterogeneity

Abstract:
We investigate the role of limited access to airport facilities as a determinant of the hub premium in the US airline industry. We use original data from competition plans that airports are required to submit to the Department of Transportation in compliance with the Aviation Investment and Reform Act for the 21st Century. We collect information on the availability and control of airport gates, leasing arrangements, and other restrictions limiting the expansion of airport facilities.

We find that the hub premium is increasing in the ticket fare. We find that control of gates is a crucial determinant of this premium. Limits on the fees that airlines can charge for subleasing their gates lower the prices charged by airlines. Finally, control of gates and restrictions on sublease fees explain high fares only when there is a scarcity of gates relative to the number of departures out of an airport.

Market Power, Airline Industry, Barriers to Entry, Product Differentiation, Hub Premium, Airport Facilities

Abstract:
We study the exit of hospitals from the market for inpatient services. More generous hospital reimbursement significantly reduces the probability of exit throughout the 1990s. Conditional on reimbursement levels, hospital efficiency was not a significant determinant in the early 1990s but in the mid- to late 1990s, less efficient hospitals were significantly more likely to exit. Throughout the period, high-tech services increased the probability of survival, and for-profit hospitals were more likely to exit. The role of Medicare as a determinant of exit became less important in the latter half of the 1990s.

Abstract:
During the 1990s, a record number of U.S. hospitals entered into some form of vertical combination with physicians. During the same period, many integrated hospital-physician arrangements broke up. Using data from California, we investigate whether such vertical activity affected hospital pricing. We find that, on average, neither integration nor disintegration was associated with changes in prices. Integration among rural hospitals is associated with large price decreases, but the sample of such hospitals is small.

Hospital, vertical integration, physicians