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

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  • 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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Bibliographic 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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Web page: http://www.rje.org

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Web: https://editorialexpress.com/cgi-bin/rje_online.cgi

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Cited by:
  1. Ovtchinnikov, Alexei V., 2013. "Merger waves following industry deregulation," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 51-76.
  2. Austan Goolsbee & Chad Syverson, 2005. "How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," NBER Working Papers 11072, National Bureau of Economic Research, Inc.
  3. Michael Keen & Jon Strand, 2007. "Indirect Taxes on International Aviation," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 1-41, 03.
  4. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June.
  5. Hüschelrath, Kai & Müller, Kathrin, 2011. "Patterns and effects of entry in US airline markets," ZEW Discussion Papers 11-059, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Bettini, Humberto F.A.J. & Oliveira, Alessandro V.M., 2008. "Airline capacity setting after re-regulation: The Brazilian case in the early 2000s," Journal of Air Transport Management, Elsevier, vol. 14(6), pages 289-292.
  7. 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.
  8. 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.
  9. 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, Universidad Alberto Hurtado/School of Economics and Bussines.
  10. Severin Borenstein & Nancy L. Rose, 2013. "How Airline Markets Work…or Do They? Regulatory Reform in the Airline Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 63-135 National Bureau of Economic Research, Inc.
  11. Ben Abda, Mehdi & Belobaba, Peter P. & Swelbar, William S., 2012. "Impacts of LCC growth on domestic traffic and fares at largest US airports," Journal of Air Transport Management, Elsevier, vol. 18(1), pages 21-25.
  12. 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.

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