A Dynamic Model of Airline Competition

Fang Ying () and Robin Sickles
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Fang Ying: Department of Economics, Rice University

Review of Network Economics, 2007, vol. 6, issue 3, 17

Abstract: We develop a dynamic model of collusion in airport-pair routes for selected US airlines and specify the first order conditions using a state-space representation that is estimated by Kalman-filtering techniques using the Databank 1A (DB1A) Department of Transportation (DOT) data during the period 1979I-1988IV. We consider two airlines, American (AA) and United (UA) and four city-pairs. Our measure of market power is based on the shadow value of long-run profits in a two-person strategic dynamic game and we find evidence of relative market power of AA in three of the four city pairs we analyze.

Date: 2007
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DOI: 10.2202/1446-9022.1125

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