Multimarket Contact and Market Power Implications in the US Airline Industry

Jules Yimga ()
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Jules Yimga: Embry-Riddle Aeronautical University

Networks and Spatial Economics, 2023, vol. 23, issue 4, No 7, 985-1024

Abstract: Abstract We investigate the impact of multimarket contact on market power. We analyze this question in the U.S. airline industry where concomitant cross-market interactions among competing carriers abound. Collecting data from the U.S. Bureau of Transportation Statistics and exploiting a methodology that allows us to compute the Lerner index (proxy for market power), we find that multimarket contact between carriers has a U-shaped effect on market power. This suggests that there exists a threshold level of multimarket contact for carriers that compete across multiple markets to recognize their interdependences and begin to mutually forbear.

Keywords: Airlines; Multimarket contact; Lerner index; Market power; Mutual forbearance; Nested logit (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11067-023-09601-3

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