Download this Paper Open PDF in Browser

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

Federico Ciliberto

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

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: 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.

Keywords: Multi-Market Contact, Collusion, Differentiated Products, Airport Facilities, Airline Industry

JEL Classification: L13

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). RAND Journal of Economics, Vol. 45, No. 4, 2014. Available at SSRN: https://ssrn.com/abstract=1657728 or http://dx.doi.org/10.2139/ssrn.1657728

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 North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Paper statistics

Downloads
633
Rank
33,764
Abstract Views
4,552