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Entry and Competitive Structure in Deregulated Airline Markets: An Event Study Analysis of People Express

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Author Info
Michael D. Whinston
Scott C. Collins
Abstract

While recent studies of deregulated airline prices considerably advance our understanding of competitive structure in this industry, they suffer from several weaknesses that could potentially undermine their inferences. In this article, we consider an alternative approach to this issue that uses the reactions of incumbent airlines' stock prices to announcements of entry by People Express to shed light on competitive structure. These stock reactions reveal significant route-specific profits or sunk costs (rejecting, for example, the contestable market model) and also provide evidence on the degree of competitive localization present in the industry. We also examine the price, sales quantity, and schedule changes that followed entry. These changes corroborate the conclusions emerging from our analysis of stock price reactions.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 23 (1992)
Issue (Month): 4 (Winter)
Pages: 445-462
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Handle: RePEc:rje:randje:v:23:y:1992:i:winter:p:445-462

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  1. Severin Borenstein & Nancy L. Rose, 2007. "How Airline Markets Work...Or Do They? Regulatory Reform in the Airline Industry," NBER Working Papers 13452, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. John Simpsom, 2001. "Did May Company's Acquisition of Associated Dry Goods Corporation Reduce Competition? An Event Study Analysis," Review of Industrial Organization, Springer, vol. 18(4), pages 351-362, June. [Downloadable!] (restricted)
  3. Jon Strand & Michael Keen, 2006. "Indirect Taxes on International Aviation," IMF Working Papers 06/124, International Monetary Fund. [Downloadable!]
    Other versions:
  4. Austan Goolsbee & Chad Syverson, 2004. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," Working Papers 04-04, NET Institute, revised Dec 2004. [Downloadable!]
    Other versions:
  5. Xavier Fageda, 2006. "Measuring Conduct and Cost Parameters in the Spanish Airline Market," Review of Industrial Organization, Springer, vol. 28(4), pages 379-399, June. [Downloadable!] (restricted)
    Other versions:
  6. Daniel Hosken, John David Simpson, 2001. "Have Supermarket Mergers Raised Prices? An Event Study Analysis," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 8(3), pages 329-342, November. [Downloadable!] (restricted)
  7. Harumi Ito & Darin Lee, 2003. "Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future," Working Papers 2003-12, Brown University, Department of Economics. [Downloadable!]
  8. Claudio Agostini, 2005. "El Mercado de Transporte Aéreo: Lecciones para Chile de una Revisión de la Literatura," ILADES-Georgetown University Working Papers inv163, Ilades-Georgetown University, School of Economics and Bussines. [Downloadable!]
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