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Financial condition and product market cooperation

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  • Gustafson, Matthew T.
  • Ivanov, Ivan T.
  • Ritter, John

Abstract

We provide evidence that existing studies relating financial condition to product market cooperation produce mixed results because of unique features of the industries examined. In particular, all evidence suggesting that poor financial condition decreases cooperation comes from the airline industry during periods of high idle capacity. Using a unique data set of aggregate airfare hikes and a more recent low-idle-capacity period, we find that poor financial condition is positively associated with product market cooperation. Although financially weak airlines appear to value the immediate cash flows of increased cooperation, only liquidity-constrained firms seem willing to incur the cost of cooperative attempts.

Suggested Citation

  • Gustafson, Matthew T. & Ivanov, Ivan T. & Ritter, John, 2015. "Financial condition and product market cooperation," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 1-16.
    • Handle: RePEc:eee:corfin:v:31:y:2015:i:c:p:1-16
    DOI: 10.1016/j.jcorpfin.2014.12.014
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    Cited by:

    1. Liu, Chih-Chen & Mukherjee, Arijit & Wang, Leonard F.S., 2016. "Product market cooperation, entry and consumer welfare," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 277-280.

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    More about this item

    Keywords

    Financial distress; Product market cooperation; Liquidity; Capacity constraints; Airfare hikes;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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