Monday, August 29, 2016
Philip Gayle and Tyson Thomas are Assessing Firm Behavior in Carve-out Markets: Evidence on the Impact of Carve-out Policy.
ABSTRACT: Airlines wanting to cooperatively set prices for their international air travel service must apply to the relevant authorities for antitrust immunity (ATI). While cooperation may yield benefits, it can also have anti-competitive effects in markets where partners competed prior to receiving ATI. A carve-out policy forbids ATI partners from cooperating in markets policymakers believe will be most harmed by anti-competitive effects. We examine carve-out policy applications to three ATI partner pairings, and find evidence more consistent with cooperative pricing in carve-out markets in spite of the policy, calling into question the effectiveness of the policy in achieving intended market outcomes.