Abstract

http://ssrn.com/abstract=1840814
 
 

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The Effect of Short-term Liquidity and Capacity Constraints on Tacit Collusion


Matthew Gustafson


Smeal College of Business

Ivan Ivanov


U.S. Securities and Exchange Commission

John Ritter


University of Rochester - William E. Simon Graduate School of Business Administration

October 2012


Abstract:     
We provide empirical evidence on the peculiar dynamics by which firms in the airline industry perform aggregate price adjustments and argue why these fare hikes represent tacit collusion. After using weather instruments to account for endogeneity in our capacity measures, we find that negative changes (and low levels of) both short-term liquidity and idle capacity lead to increases in the probability of collusive actions. In addition, we find that these effects are complementary such that liquidity constraints cause firms to hike only when idle capacity is low, but have the opposite effect when idle capacity is high.

Number of Pages in PDF File: 40

Keywords: Short-Term Liquidity, Financial Distress, Tacit Collusion, Capacity Constraints, Airfare Price Hikes

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Date posted: May 13, 2011 ; Last revised: December 4, 2012

Suggested Citation

Gustafson, Matthew and Ivanov, Ivan and Ritter, John, The Effect of Short-term Liquidity and Capacity Constraints on Tacit Collusion (October 2012). Available at SSRN: http://ssrn.com/abstract=1840814 or http://dx.doi.org/10.2139/ssrn.1840814

Contact Information

Matthew Gustafson
Smeal College of Business ( email )
East Park Avenue
University Park, PA 16802
United States
Ivan Ivanov (Contact Author)
U.S. Securities and Exchange Commission ( email )
100 F Street, NE
Washington, DC 20549
United States
John Ritter
University of Rochester - William E. Simon Graduate School of Business Administration ( email )
Rochester, NY 14627
United States
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