Collusive Pricing Patterns in the US Airline Industry

34 Pages Posted: 3 Aug 2017 Last revised: 3 Aug 2018

Federico Ciliberto

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

Eddie Watkins

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

Jonathan W. Williams

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

Date Written: May 22, 2018

Abstract

We formulate two empirical tests for collusive behavior based on the theoretical insights of Werden and Froeb [1994] and Athey, Bagwell, and Sanchirico [2004]. The first predicts that colluding firms will reduce pair-wise differences in prices within a market if demand satisfies certain properties. The second predicts that colluding firms will sacrifice efficiency in production by increasing price rigidity to avoid informational costs. Using panel data from the US airline industry and fixed-effects estimation, we find that greater multimarket contact between carriers leads to pricing patterns consistent with both theoretical predictions, while code-share agreements are consistent with the second prediction.

Keywords: Collusion, Multimarket Contact, Code-Share Agreement, Airline Industry, Price Differences and Rigidity

JEL Classification: L13

Suggested Citation

Ciliberto, Federico and Watkins, Eddie and Williams, Jonathan W., Collusive Pricing Patterns in the US Airline Industry (May 22, 2018). Available at SSRN: https://ssrn.com/abstract=3012580 or http://dx.doi.org/10.2139/ssrn.3012580

Federico Ciliberto

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

Edwin Watkins

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

102 Ridge Road
Chapel Hill, NC 27514
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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