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http://ssrn.com/abstract=1657728
 
 

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Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry


Federico Ciliberto


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


Abstract:     
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

working papers series


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Date posted: August 12, 2010 ; Last revised: February 13, 2014

Suggested Citation

Ciliberto, Federico and Williams, Jonathan W., Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry (February 12, 2014). Available at SSRN: http://ssrn.com/abstract=1657728 or http://dx.doi.org/10.2139/ssrn.1657728

Contact Information

Federico Ciliberto (Contact Author)
University of Virginia - Department of Economics ( email )
P.O. Box 400182
Charlottesville, VA 22904-4182
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Jonathan W. Williams
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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