Abstract

http://ssrn.com/abstract=605723
 
 

Citations



 


 



Market Structure and Multiple Equilibria in the Airline Industry


Federico Ciliberto


University of Virginia - Department of Economics; Centre for Economic Policy Research (CEPR)

Elie T. Tamer


Northwestern University - Department of Economics

March 1, 2009

Econometrica, Vol. 77, No. 6, pp. 1791-1828, November 2009

Abstract:     
We provide a practical method to estimate the payoff functions of players in complete information, static, discrete games. With respect to the empirical literature on entry games originated by Bresnahan and Reiss (1990) and Berry (1992), the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions. We allow the effects that the entry of each individual airline has on the profits of its competitors, its "competitive effects," to differ across airlines. The identified features of the model are sets of parameters (partial identification) such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data.

We apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the U.S. airline industry. We find evidence of heterogeneity across airlines in their profit functions. The competitive effects of large airlines (American, Delta, United) are different from those of low cost carriers and Southwest. Also, the competitive effect of an airline is increasing in its airport presence, which is an important measure of observable heterogeneity in the airline industry. Then we develop a policy experiment to estimate the effect of repealing the Wright Amendment on competition in markets out of the Dallas airports. We find that repealing theWright Amendment would increase the number of markets served out of Dallas Love.

Keywords: Entry Models, Inference in Discrete Games, Multiple Equilibria, Partial Identification, Airline Industry, Firm Heterogeneity

Accepted Paper Series


Not Available For Download

Date posted: September 18, 2009 ; Last revised: November 10, 2009

Suggested Citation

Ciliberto, Federico and Tamer, Elie T., Market Structure and Multiple Equilibria in the Airline Industry (March 1, 2009). Econometrica, Vol. 77, No. 6, pp. 1791-1828, November 2009. Available at SSRN: http://ssrn.com/abstract=605723

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
Elie T. Tamer
Northwestern University - Department of Economics ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
Feedback to SSRN


Paper statistics
Abstract Views: 4,672

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.266 seconds