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Barriers to Entry in the Airline Industry: A Multi-Dimensional Regression-Discontinuity Analysis of AIR-21

51 Pages Posted: 6 Mar 2011 Last revised: 20 Nov 2015

Connan Andrew Snider

University of California, Los Angeles (UCLA) - Department of Economics

Jonathan W. Williams

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

Date Written: January 1, 2014

Abstract

We investigate the success of legislation aimed at increasing competition at highly concentrated major US airports, mainly by forcing these airports to increase the availability of scarce airport facilities to new entrants. We use a multi-dimensional regression-discontinuity approach to exploit a sharp discontinuity in the law's implementation and identify its effects. We find a statistically and economically significant decrease in fares resulting from an airport's coverage, 13.4% (20.2%) in markets with one (both) endpoint(s) covered. Approximately half of the decline in fares is driven by the entry of low-cost carriers. With the exception of a small effect on on-time performance, we find little evidence that the fare declines were accompanied by a diminished quality of service. The magnitude of price declines relative to delay increases, along with the accompanying increases in passenger volumes, suggest the legislation was welfare improving. The results also suggest operating barriers to entry have been an important impediment to new low-cost competition.

Keywords: Regression Discontinuity, Treatment Effect, Airline Industry, Barriers to Entry, Hub Premium, Airport Facilities

JEL Classification: C14, L50, L13, L93

Suggested Citation

Snider, Connan Andrew and Williams, Jonathan W., Barriers to Entry in the Airline Industry: A Multi-Dimensional Regression-Discontinuity Analysis of AIR-21 (January 1, 2014). Review of Economics and Statistics, Vol. 97, No. 5, 2015. Available at SSRN: https://ssrn.com/abstract=1775924 or http://dx.doi.org/10.2139/ssrn.1775924

Connan Andrew Snider

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

Jonathan W. Williams (Contact Author)

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

Chapel Hill, NC 27599
United States

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