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Airline Economics pp 49–71Cite as

Palgrave Macmillan

Entry and Market-Sharing Agreements in the U.S. Airline Industry

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Abstract

I attempt to assess collusion in terms of market-sharing agreements among airlines. To pursue this goal, I develop a sequential entry model estimating firm-specific entry functions, for a cross-section sample of 661 airline city pair markets. Entry decisions depend upon market characteristics and market structure (rival’s presence). In line with early literature (e.g. Berry, Econometrica 60: 889–917, 1992), results suggest evidence that firm i’s airport presence increases its likelihood of market entry, and hence the profitability of city pair markets. Furthermore, the empirical evidence appears partly consistent with the possibility of market sharing agreements.

This chapter has benefited greatly by the help of Franco Mariuzzo for means of several discussions, by generating the algorithm for implementing the sequential order of entry in the model.

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Notes

  1. 1.

    Belleflamme and Bloch (2004) mention these antitrust cases.

  2. 2.

    I refer to section four for details on empirical findings.

  3. 3.

    The top seven airlines produce twenty-one pairs \(\left( {\frac{7\,^{*}6}{2}} \right)\) for each of which I calculate observed contacts.

  4. 4.

    I interpret ‘soft’ price competition in the sense of Sutton (1991); that is, at comparable level of market concentration price-cost margins are higher.

  5. 5.

    Recall that in Table 4.2 of Chap. 4 the seven major airlines produce twenty-one airline pairs; whereas, for the effect of these recent mergers the current four top airlines give \(\left( { \frac{4\,^{*}3}{2}} \right)=6\) firm pairs. These six airline pairs are: American—Delta; American—Southwest; American United Continental; Delta—Southwest; Delta—United Continental; Southwest—United Continental.

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  1. Swansea University, Swansea, United Kingdom

    Giovanni Alberto Tabacco

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  1. Giovanni Alberto Tabacco
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Tabacco, G.A. (2017). Entry and Market-Sharing Agreements in the U.S. Airline Industry. In: Airline Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-46729-0_4

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  • DOI: https://doi.org/10.1007/978-3-319-46729-0_4

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