Abstract

http://ssrn.com/abstract=1375450
 
 

References (44)



 
 

Citations (3)



 


 



Capacity Investments, Exclusionary Behavior, and Welfare: A Dynamic Model of Competition in the Airline Industry


Jonathan W. Williams


University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

December 1, 2008


Abstract:     
This paper uses unique data on access to airport facilities to study the strategic entry, exit, and capacity decisions of firms in the US airline industry. I estimate a dynamic equilibrium model in which forward-looking …firms invest in seating capacity and play a capacity-constrained pricing game. I …find that the intensity of competition depends directly on the characteristics and identity of the incumbent fi…rm. In particular, dominant hub carriers aggressively invest in capacity following entry by low-cost carriers, providing a commitment to price aggressively in future periods. In doing so, the hub carrier can substantially increase the likelihood of exit by the targeted …rm. The resulting reduction in the level of competition reduces consumer welfare relative to an environment in which anti-trust authorities can eliminate such exclusionary behavior.

Number of Pages in PDF File: 45

Keywords: Predation, Market Power, Airline Industry, Barriers to Entry, Product Differentiation

JEL Classification: L13, L93

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Date posted: April 9, 2009 ; Last revised: January 16, 2013

Suggested Citation

Williams, Jonathan W., Capacity Investments, Exclusionary Behavior, and Welfare: A Dynamic Model of Competition in the Airline Industry (December 1, 2008). Available at SSRN: http://ssrn.com/abstract=1375450 or http://dx.doi.org/10.2139/ssrn.1375450

Contact Information

Jonathan W. Williams (Contact Author)
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )
Athens, GA 30602-6254
United States
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Download Rank: 208,762
References:  44
Citations:  3

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