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Collusive pricing patterns in the US airline industry

Federico Ciliberto (), Eddie Watkins and Jonathan W. Williams

International Journal of Industrial Organization, 2019, vol. 62, issue C, 136-157

Abstract: We formulate two empirical tests for collusive behavior based on the theoretical insights of Werden and Froeb (1994) and Athey, Bagwell, and Sanchirico (2004). The first predicts that colluding firms will reduce pair-wise differences in prices within a market if demand satisfies certain properties. The second predicts that colluding firms will sacrifice efficiency in production by increasing price rigidity to avoid informational costs. Using panel data from the US airline industry and fixed-effects estimation, we find that greater multimarket contact between carriers leads to pricing patterns consistent with both theoretical predictions, while code-share agreements are consistent with the second prediction.

Keywords: Collusion; Multimarket contact; Code-share agreement; Airline industry; Price differences and rigidity (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2019
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