Coordinated Capacity Reductions and Public Communication in the Airline Industry

50 Pages Posted: 12 Feb 2018 Last revised: 11 Feb 2019

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

Federico Ciliberto

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

Benjamin T. Leyden

Cornell University - Dyson School of Applied Economics and Management

Multiple version iconThere are 3 versions of this paper

Date Written: February 9, 2019

Abstract

We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. Using text analytics, we build a novel dataset on communication among airlines about their capacity choices. Our estimates show that when all legacy airlines in a market discuss the concept of “capacity discipline,” they reduce offered seats by between 1.14% to 1.48%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional evidence from conditional-exogeneity tests and control function estimates confirms our interpretation.

Keywords: Airlines, Communication, Collusion, Capacity Discipline, Text Data

JEL Classification: D22, L13, L41, L93

Suggested Citation

Aryal, Gaurab and Ciliberto, Federico and Leyden, Benjamin T., Coordinated Capacity Reductions and Public Communication in the Airline Industry (February 9, 2019). Available at SSRN: https://ssrn.com/abstract=3122560 or http://dx.doi.org/10.2139/ssrn.3122560

Gaurab Aryal (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

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 )

London
United Kingdom

Benjamin T. Leyden

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
176
rank
70,515
Abstract Views
916
PlumX Metrics