Public Communication and Collusion in the Airline Industry

60 Pages Posted: 16 Feb 2018  

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

University of Virginia - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: February 2018

Abstract

We investigate whether the top management of all legacy U.S. airlines used their quarterly earnings calls as a mode of communication with other airlines to coordinate output reduction (fewer passenger seats) on competitive routes. We build an original and novel dataset on the public communication content from the earnings calls, and use Natural Language Processing techniques from computational linguistics to parse and code the text from earnings calls by air-line executives to measure communication. Then we determine if mentioning terms associated with “capacity discipline” is a way to sustain collusion on capacity. The estimates show that when all legacy carriers in a market communicate “capacity discipline,” it leads to a substantial reduction in the number of seats offered in the market. We find that the effect is driven entirely by legacy carriers, and also that the reduction is larger in smaller markets. Finally, we leverage our high-dimensional text data to develop novel approaches to implement falsification tests and check conditional exogeneity, and confirm that our finding — legacy airlines use public communication regarding capacity discipline to collude — is not spurious.

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

JEL Classification: D22, L12, L41, L68

Suggested Citation

Aryal, Gaurab and Ciliberto, Federico and Leyden, Benjamin T., Public Communication and Collusion in the Airline Industry (February 2018). Becker Friedman Institute for Research in Economics Working Paper No. 2018-11. Available at SSRN: https://ssrn.com/abstract=3123972 or http://dx.doi.org/10.2139/ssrn.3123972

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 )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Benjamin T. Leyden

University of Virginia - Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

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