Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry
50 Pages Posted: 12 Aug 2010 Last revised: 20 Nov 2015
Date Written: 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.
Keywords: Multi-Market Contact, Collusion, Differentiated Products, Airport Facilities, Airline Industry
JEL Classification: L13
Suggested Citation: Suggested Citation