We nest conduct parameters into a standard oligopoly model. The conduct parameters are modeled as functions of multimarket contact. Using data from the US airline industry, we …nd: i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that …rms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.
We investigate the role of limited access to airport facilities as a determinant of the hub premium in the U.S. airline industry. We use original data from competition plans that airports are required to submit to the U.S. Department of Transportation in compliance with the Aviation Investment and Reform Act for the Twenty-First Century. We collect information on the availability and control of airport gates, leasing arrangements, and other restrictions limiting the expansion of airport facilities. We find that the hub premium is increasing in the ticket fare. We find that control of gates is a crucial determinant of this premium. Limits on the fees that airlines can charge for subleasing their gates lower the prices charged by airlines. Finally, control of gates and restrictions on sublease fees explain high fares only when there is a scarcity of gates relative to the number of departures from an airport.
We provide a practical method to estimate the payoff functions of players in complete information, static, discrete games. With respect to the empirical literature on entry games originated by Bresnahan and Reiss (1990) and Berry (1992), the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions. We allow the effects that the entry of each individual airline has on the profits of its competitors, its "competitive effects," to differ across airlines. The identified features of the model are sets of parameters (partial identification) such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data.We apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the U.S. airline industry. We find evidence of heterogeneity across airlines in their profit functions. The competitive effects of large airlines (American, Delta, United) are different from those of low cost carriers and Southwest. Also, the competitive effect of an airline is increasing in its airport presence, which is an important measure of observable heterogeneity in the airline industry. Then we develop a policy experiment to estimate the effect of repealing the Wright Amendment on competition in markets out of the Dallas airports. We find that repealing the Wright Amendment would increase the number of markets served out of Dallas Love.
We investigate the e¤ects of Chapter 11 bankruptcy …lings on product market competition using data from the US airline industry. We …nd that bankrupt airlines permanently downsize their national route structure, their airport-speci…c networks, and their route-speci…c ‡ight frequency and capacity. We also …nd that bankrupt airlines lower their route-speci…c prices while under bankruptcy protection, and increase them after emerging. We do not …nd robust evidence of signi…cant changes by the bankrupt airline's competitors along any of the dimensions above. Overall, our results are consistent with the hypothesis that bankruptcy is the result of a war of attrition over capacity and network cutbacks.
I investigate whether organizational changes affect investment decisions using evidence from the hospital industry in the United States. During the 1990s, hospitals and physicians have reorganized the way they trade with each other, vertically consolidating the provision of healthcare services. I provide empirical evidence that hospitals adopting the new organizational forms add more healthcare services over time than hospitals that are independent of their physicians. I also find that when the average percentage of county population covered by each HMO increases, the differences in investment behavior between vertically consolidated and independent hospitals become larger.
The shifting landscape brings challenges to nationwide efforts toward accountability and improved quality of care.b y Glo r ia J. Ba z z o l i, S t e ph e n M . S h or t e l l , Fe d e r ic o Cil i b e rt o , P e t e r D. K ra l o v e c , a n d N ic o l e L . D u b b s T he merger and affiliation mania in the hospital industry during the 1990s captured the attention of health executives, policymakers, and purchasers alike. Based on early evidence, some heralded the resulting changes as the beginning of a new era in health care delivery-one focused around organized systems of health care delivery and financing.Others were skeptical, viewing these efforts as moves to generate increased market power, as new approaches to achieve old aims (namely, to align more physicians to fill empty hospital beds), or as mimetic responses that copied the actions of others without commitment to organizational change. Initially, consultants and the trade press promoted these efforts, and some suggested that the very survival of health care providers in the new world of managed care was contingent on developing organized delivery systems.! Now these sources highlight examples of demerger and disaffiliation that are being cited as the new trend.
"What exactly is happening across the national landscape? Are we observing a general, nationwide trend away from the vertical and horizontal arrangements that were to provide the backbone for organized delivery systems? ABSTRACT: Throughout the 1990s health care providers were interested in developing organized delivery systems. However, industry observers have increasingly questioned the sense of these efforts. Using an established taxonomy of health networks and systems, we examined whether there was a nationwide trend away from the vertical and horizontal arrangements that serve as the backbone to organized delivery systems. Studying 1994-1998, we found that both health networks and systems became less centralized in their hospital services, physician arrangements, and insurance product development. We did not find a general pathway to disintegration but instead found considerable experimentation in organizational form.
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