Market Structure and Competition in Airline Markets

Federico Ciliberto, Charles Murry and Elie Tamer

Journal of Political Economy, 2021, vol. 129, issue 11, 2995 - 3038

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 postmerger outcomes depend on how we model the characteristics of the merged firm as a function of the premerger firms’ characteristics.

Date: 2021
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Working Paper: Market Structure and Competition in Airline Markets (2018)
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