Exchanges of Cost Information in the Airline Industry
AbstractWe empirically analyze exchanges of cost information in a multimarket oligopoly model for the airline industry with entry and incomplete information on marginal costs. We develop an algorithm to solve the Nash equilibrium numerically. We estimate the structural model of supply decisions using data on the American Airlines and United Airlines duopoly at Chicago O'Hare airport. Our results provide probabilities of entry, expected quantities, prices, and profits in each market. Given the estimated parameters, we simulate competition under a hypothetical agreement to exchange cost information. We find that such exchanges would benefit airlines while only moderately costing consumers. Copyright 2003 by the RAND Corporation.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 34 (2003)
Issue (Month): 3 (Autumn)
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Web page: http://www.rje.org
Other versions of this item:
- Olivier Armantier & Oliver Richard, 2000. "Exchanges of Cost Information in the Airline Industry," Department of Economics Working Papers 00-04, Stony Brook University, Department of Economics.
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- Reiss, Peter C & Spiller, Pablo T, 1989. "Competition and Entry in Small Airline Markets," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S179-202, October.
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- Wang, Kun & Gong, Qiang & Fu, Xiaowen & Fan, Xingli, 2014. "Frequency and aircraft size dynamics in a concentrated growth market: The case of the Chinese domestic market," Journal of Air Transport Management, Elsevier, vol. 36(C), pages 50-58.
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