Multiple Equilibria and Deterrence in Airline Markets

20 Pages Posted: 21 Nov 2016

See all articles by Federico Ciliberto

Federico Ciliberto

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

Zhou Zhang

University of Virginia

Multiple version iconThere are 2 versions of this paper

Date Written: January 2017

Abstract

We use a longitudinal dataset from the U.S. airline industry to estimate three different models for entry games with very general forms of heterogeneity between U.S. carriers in airline markets: a simultaneous game with complete information and two sequential games with or without strategic entry deterrence. In a sequential game with entry deterrence, an incumbent decides whether to incur a cost to deter potential entrants. We show that the model with sequential games with strategic deterrence provides the best fit to the data. We conclude that the results reject the hypothesis of a static model and support the hypothesis of the existence of strategic entry deterrence.

JEL Classification: L1

Suggested Citation

Ciliberto, Federico and Zhang, Zhou, Multiple Equilibria and Deterrence in Airline Markets (January 2017). Economic Inquiry, Vol. 55, Issue 1, pp. 319-338, 2017, Available at SSRN: https://ssrn.com/abstract=2872449 or http://dx.doi.org/10.1111/ecin.12381

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 )

London
United Kingdom

Zhou Zhang

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

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