Coordinated Capacity Reductions and Public Communication in the Airline Industry

62 Pages Posted: 16 Feb 2018 Last revised: 27 Jul 2021

See all articles by Gaurab Aryal

Gaurab Aryal

Washington University in St. Louis

Federico Ciliberto

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

Benjamin T. Leyden

Cornell University - Charles H. Dyson School of Applied Economics and Management

Multiple version iconThere are 4 versions of this paper

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

Aryal, Gaurab and Ciliberto, Federico and Leyden, Benjamin T., Coordinated Capacity Reductions and Public Communication in the Airline Industry (July 25, 2021). Forthcoming, The Review of Economic Studies, 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)

Washington University in St. Louis ( email )

Seigle Hall 335
One Brookings Drive
St. Louis, MO 63130
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 - Charles H. Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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