Market Structure and Competition in Airline Markets

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

Ciliberto, Federico and Murry, Charles and Tamer, Elie T., Market Structure and Competition in Airline Markets (February 14, 2020). Available at SSRN: https://ssrn.com/abstract=2777820 or http://dx.doi.org/10.2139/ssrn.2777820