Download This PaperCoordinated Capacity Reductions and Public Communication in the Airline Industry
Forthcoming, The Review of Economic Studies
Becker Friedman Institute for Research in Economics Working Paper No. 2018-11
62 Pages Posted: 16 Feb 2018 Last revised: 27 Jul 2021
There are 4 versions of this paper
Coordinated Capacity Reductions and Public Communication in the Airline Industry
Coordinated Capacity Reductions and Public Communication in the Airline Industry
Coordinated Capacity Reductions and Public Communication in the Airline Industry
Coordinated Capacity Reductions and Public Communication in the Airline Industry
Date Written: July 25, 2021
Abstract
We investigate the allegation that legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. To this end, we first use text analytics to build a novel dataset on communication among airlines about their capacity choices. Estimates from our preferred specification show that the number of offered seats is 2% lower when all legacy airlines in a market discuss the concept of “capacity discipline.” We verify that this reduction materializes only when legacy airlines communicate concurrently, and that it cannot be explained by other possibilities, including that airlines are simply announcing to investors their unilateral plans to reduce capacity, and then following through on those announcements.
Keywords: Airlines, Communication, Collusion, Capacity Discipline, Text Data
JEL Classification: D22, L13, L41, L93
Suggested Citation: Suggested Citation
