Market Structure and Competition in Airline Markets

74 Pages Posted: 3 Dec 2018 Last revised: 2 Mar 2020

See all articles by Federico Ciliberto

Federico Ciliberto

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

Charles Murry

Boston College - Department of Economics

Elie T. Tamer

Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: November 2018

Abstract

We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions while allowing for correlations between unobserved cost and demand shocks. We use our framework to account for selection in the pricing stage. We estimate the model using data from the US airline industry and find that not accounting for endogenous entry leads to biased estimation of demand elasticities. We simulate a merger between American and US Airways and find that product repositioning and post-merger outcomes depend on how we model the characteristics of the merged firm as a function of the pre-merger firms' characteristics.

Keywords: Entry, market power, market structure, merger, multiple equilibria, oligopoly, Self-selection

JEL Classification: C35, C51, D43, L13, L41, L44

Suggested Citation

Ciliberto, Federico and Murry, Charles and Tamer, Elie T., Market Structure and Competition in Airline Markets (November 2018). CEPR Discussion Paper No. DP13346, Available at SSRN: https://ssrn.com/abstract=3295004

Federico Ciliberto (Contact Author)

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

Charles Murry

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Elie T. Tamer

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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