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The Nonlinear Effects of Market Structure on Service Quality: Evidence from the U.S. Airline Industry

Kang Hua Cao (), Betty Krier (), Chia-Mei Liu (), Brian McNamara () and Jerrod Sharpe ()
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Kang Hua Cao: Hong Kong Baptist University
Betty Krier: U.S. Department of Transportation Office of Inspector General
Chia-Mei Liu: Federal Aviation Administration
Brian McNamara: Federal Reserve Bank of Chicago
Jerrod Sharpe: U.S. Department of Transportation Office of Inspector General

Review of Industrial Organization, 2017, vol. 51, issue 1, 43-73

Abstract: Abstract This paper revisits the topic of the effect of airline competition on service quality, but allowing for nonlinear effects. Using a panel of monthly data for 5472 route-carrier combinations from 2005:4Q through 2012:4Q, we find that the average length of flight delays and cancellation rates increase with the concentration level. Worse service quality is linked to less competition. In addition, we find that the relationships between our measures of service quality and market concentration are nonlinear, so that the scale of the effects of a given change in airline competition appears to depend on the initial level of competition.

Keywords: Airlines; Competition; Flight delays and cancellations; Market structure; Nonlinear; Service quality (search for similar items in EconPapers)
JEL-codes: D43 L13 L93 (search for similar items in EconPapers)
Date: 2017
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