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
We provide empirical evidence that multimarket contact facilitates tacit collusion in the US airline industry using a exible model of oligopolistic behavior, where conduct parameters are modeled as functions of multimarket contact. We find i) carriers with little multi-market 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 collusive behavior and equilibrium fares; iii) marginal changes in multi-market contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.
Number of Pages in PDF File: 49
Keywords: Multi-Market Contact, Collusion, Differentiated Products, Airport Facilities, Airline Industry
JEL Classification: L13working papers series
Date posted: August 12, 2010 ; Last revised: September 15, 2013
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