August 12, 2010
The Battle for the Skies
Though now a bit dated, blog readers may still want to peruse Conor Talbor's paper, The Battle for the Skies: Recent Legal Developments in the EU and US, And Their Implications for the Consolidation of the Airline Industry (Working Paper Jan. 2008) (available from SSRN here). From the abstract:
The airline industry is one of the most emotive and controversial sectors of the global economy, and as such its attempts at international consolidation have been subjected to scrutiny from political circles as often as from competition authorities. This brief paper outlines how the industry’s need for drastic rationalisation has fared against the background of suspicious regulators and nationalistic governments. The recent moves towards Open Skies add an interesting cross-Atlantic dimension which is studied in order to give an insight into the regulatory and political decision-making under each system.
August 11, 2010
Does Multimarket Contact Facilitate Tacit Collusion?
Blog readers interested in airline competition issues should make a point to read Federico Ciliberto & Jonathan W. Williams' Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry (Working Paper Aug. 11, 2010) (available from SSRN here). From the abstract:
We nest conjectural parameters into a standard oligopoly model. The conjectural parameters are modeled as functions of multimarket contact. Using data from the US airline industry, we find: i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.