Common-Subcontracting and Multimarket Contact in the Airline Industry

35 Pages Posted: 8 May 2020

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

Dennis J. Campbell

University of Virginia - Department of Economics

Federico Ciliberto

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

Ekaterina Khmelnitskaya

University of Virginia

Date Written: April 14, 2020

Abstract

We estimate the effect of major airlines' use of the same regional airlines (as common-subcontractors) across different markets, on ticket prices. We consider the hypothesis that there is a complementarity between the anti-competitive role of multimarket contact and the role of having common vertical relationships, henceforth, common-subcontracting. To this end, we construct a measure of common-subcontracting, and find that, on average, common-subcontracting, when acting as a “multiplier” of multi-market contact, is associated with a 6.17% increase in prices. This positive effect on prices is in addition to the 2.66% increase in prices that is due only to the standard multimarket contact among major airlines.

Keywords: Airlines, Subcontracting, Multimarket Contact

JEL Classification: D22, L12, L41, L68

Suggested Citation

Aryal, Gaurab and Campbell, Dennis J. and Ciliberto, Federico and Khmelnitskaya, Ekaterina A., Common-Subcontracting and Multimarket Contact in the Airline Industry (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3576044 or http://dx.doi.org/10.2139/ssrn.3576044

Gaurab Aryal (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Dennis J. Campbell

University of Virginia - Department of Economics ( email )

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

Ekaterina A. Khmelnitskaya

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
40
Abstract Views
226
PlumX Metrics