Market Structure and Competition in Airline Markets
71 Pages Posted: 11 May 2016 Last revised: 2 Mar 2020
Date Written: February 14, 2020
We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions while allowing for correlations between unobserved cost and demand shocks. We use our framework to account for selection in the pricing stage. We estimate the model using data from the US airline industry and find that not accounting for endogenous entry leads to biased estimation of demand elasticities. We simulate a merger between American and US Airways and find that product repositioning and post-merger outcomes depend on how we model the characteristics of the merged firm as a function of the pre-merger firms' characteristics.
Keywords: Multiple Equilibria, Market Power, Self-Selection, Entry, Oligopoly, Market Structure, Merger
JEL Classification: C35, C51, D43, L13, L41, L44
Suggested Citation: Suggested Citation