Price Competition and Endogenous Product Choice in Networks: Evidence from the US Airline Industry

Christian Bontemps (), Cristina Gualdani () and Kevin Remmy ()
Additional contact information
Christian Bontemps: ENAC-LAB - Laboratoire de recherche ENAC - ENAC - Ecole Nationale de l'Aviation Civile, TSE-R - TSE-R Toulouse School of Economics – Recherche - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Cristina Gualdani: QMUL - Queen Mary University of London
Kevin Remmy: University of Mannheim = Universität Mannheim

Working Papers from HAL

Abstract: We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes.

Keywords: endogenous market structure; networks; airlines; oligopoly; product repositioning; mergers; remedies (search for similar items in EconPapers)
Date: 2024-09-25
Note: View the original document on HAL open archive server: https://hal.science/hal-04709672v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-04709672v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04709672

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().