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A tale of two duopolies: collusion and exit in a local airline industry

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  • Akihiko Kawaura

Abstract

This article investigates two episodes of market adjustments in Hawaii's interisland civil aviation market. One is collusion in which duopolists of similar size agreed to reduce their supply to the market. The other is unilateral exit by an individual company, which resulted in the asymmetric duopoly with respect to firm size. The analysis demonstrates that even a dominant duopolist cannot maintain sufficient market power to manipulate prices as long as competitive forces are present, while cooperative adjustment in the capacity dimension is likely to lead to higher prices on a sustainable basis. The results confirm the importance of competitive forces for mitigating price hikes in the process of adjustment.

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  • Akihiko Kawaura, 2015. "A tale of two duopolies: collusion and exit in a local airline industry," Applied Economics Letters, Taylor & Francis Journals, vol. 22(8), pages 664-667, May.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:8:p:664-667
    DOI: 10.1080/13504851.2014.967375
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    References listed on IDEAS

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    1. Rene Y. Kamita, 2010. "Analyzing the Effects of Temporary Antitrust Immunity: The Aloha-Hawaiian Immunity Agreement," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 239-261, May.
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    3. Alberto A. Gaggero & Claudio A. Piga, 2011. "Airline Market Power and Intertemporal Price Dispersion," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 552-577, December.
    4. Joan Calzada & Xavier Fageda, 2012. "Discounts and Public Service Obligations in the Airline Market: Lessons from Spain," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(4), pages 291-312, June.
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