Collusive Pricing Patterns in the US Airline Industry
34 Pages Posted: 3 Aug 2017 Last revised: 3 Aug 2018
Date Written: May 22, 2018
We formulate two empirical tests for collusive behavior based on the theoretical insights of Werden and Froeb  and Athey, Bagwell, and Sanchirico . 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: Suggested Citation