Coordinated Capacity Reductions and Public Communication in the Airline Industry
53 Pages Posted: 20 Feb 2018 Last revised: 25 Feb 2019
Date Written: February 2018
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, Capacity Discipline, Collusion, communication, Text Data
JEL Classification: D22, L12, L41, L68
Suggested Citation: Suggested Citation