Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry

Abstract

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.

Anticompetitive Effects of Common Ownership

“…To further assure robustness to the mode of competition, we investigate whether the estimated effect of common ownership is driven by multimarket contact. Table , specification (7), shows that there is a positive and highly statistically significant effect of multimarket contact on ticket prices, measured as average route contact as in Evans and Kessides (); see Ciliberto and Williams () for a structural version. However, the effect of MHHI delta remains significant and the estimated coefficients are little changed.…”

Assessing firm behavior in carve-out markets: Evidence on the impact of carve-out policy

“…A well established literature that may have implications for the issues examined in this paper is the literature that posits the idea of mutual forbearance [Bernheim and Whinston (1990); Evans and Kessides (1994); Baum and Korn (1996); Gimeno (1999); Gimeno and Woo (1999); Bilotkach (2011);Zou, Yu and Dresner (2012); Ciliberto and Williams (2014)]. In the field of industrial organization the concept of mutual forbearance posits that a firm will be inclined not to compete aggressively in a given market for fear of retaliation in other markets where it competes with the same firms.…”

Network Structure and Consolidation in the US Airline Industry, 1990-2015

“…In Figure 1, the Degree Centrality of San Diego (SAN) is 1/47, or d SAN (g) = 0.021, the Berry (1992) uses the number of destinations served out of the airport by an airline as a measure of the network of the airline at that airport, and Ciliberto and Williams (2014) use the measure proposed by Berry (1992) divided by the total number of destinations served by at least one airline out of the airport. Here, the denominator is given by the total number of possible routes that could be served out of the airport, given the total number of airports in the network.…”