Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry
University of Virginia - Department of Economics; Centre for Economic Policy Research (CEPR)
Jonathan W. Williams
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics
February 12, 2014
We provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using 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 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 equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.
Number of Pages in PDF File: 50
Keywords: Multi-Market Contact, Collusion, Differentiated Products, Airport Facilities, Airline Industry
JEL Classification: L13
Date posted: August 12, 2010 ; Last revised: February 13, 2014
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