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Localized Market Power in the U.S. Airline Industry

William Evans and Ioannis Kessides

The Review of Economics and Statistics, 1993, vol. 75, issue 1, 66-75

Abstract: This paper tests whether the observed dominance of most city-pair markets and airports in the U.S. domestic airline industry by single carriers confers any pricing power on the dominan t firms. The results of fixed-effects estimation indicate that airport dominance by a carrier does confer upon it substantial pricing power , whereas dominance at the route level seems to confer no such pricing power. Additionally, the authors find a positive, yet small, correlation between both route concentration, and price and airport concentration and price. The quantitative importance of airport dominance reveals that the most promising direction for public polic y aimed at improving the industry's performance is to ensure equal acc ess to sunk airport facilities. Copyright 1993 by MIT Press.

Date: 1993
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The Review of Economics and Statistics is currently edited by Amitabh Chandra, Olivier Coibion, Bryan S. Graham, Shachar Kariv, Amit K. Khandelwal, Asim Ijaz Khwaja, Brigitte C. Madrian and Rohini Pande

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