EconPapers    
Economics at your fingertips  
 

Market structure and multiple equilibria in airline markets

Federico Ciliberto () and Elie Tamer

MPRA Paper from University Library of Munich, Germany

Abstract: We provide a practical method to estimate the payoff functions of players in complete information, static, discrete games. With respect to the empirical literature on entry games originated by Bresnahan and Reiss (1990) and Berry (1992), the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions. We allow the effects that the entry of each individual airline has on the profits of its competitors, its “competitive effects,” to differ across airlines. The identified features of the model are sets of parameters (partial identification) such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data. We apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the U.S. airline industry. We find evidence of heterogeneity across airlines in their profit functions. The competitive effects of large airlines (American, Delta, United) are different from those of low cost carriers and Southwest. Also, the competitive effect of an airline is increasing in its airport presence, which is an important measure of observable heterogeneity in the airline industry. Then we develop a policy experiment to estimate the effect of repealing the Wright Amendment on competition in markets out of the Dallas airports. We find that repealing theWright Amendment would increase the number of markets served out of Dallas Love.

Keywords: Entry models; inference in discrete games; multiple equilibria; partial identification; airline industry; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: L93 C51 L11 C35 (search for similar items in EconPapers)
Date: 2009-11-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (183) Track citations by RSS feed

Published in Econometrica 6.77(2009): pp. 1791-1828

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/38635/1/MPRA_paper_38635.pdf original version (application/pdf)

Related works:
Journal Article: Market Structure and Multiple Equilibria in Airline Markets (2009) Downloads
Working Paper: Market Structure and Multiple Equilibria in Airline Markets (2004)
Working Paper: Market Structure and Multiple Equilibria in Airline Markets (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38635

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2020-08-12
Handle: RePEc:pra:mprapa:38635