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Many Fields of Battle How Cost Structure Affects Competition Across Multiple Markets

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  • Li Zou
  • Martin Dresner
  • Robert Windle

Abstract

Traditional analysis of multi-point competition suggests that firms compete less intensely with one another when they have strategic contacts across multiple markets. However, this mutual forbearance argument has not incorporated production cost differences between firms as moderating factors. Based on the US domestic air travel data, we find that the collusion-facilitating effects (as measured by airfare increases) from multi-market contact hold when multi-market contact occurs among carriers with either uniformly low costs or uniformly high costs, although, in some cases, carrier pricing is also influenced by multi-market contact between airlines with different cost structures. © 2011 LSE and the University of Bath

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  • Li Zou & Martin Dresner & Robert Windle, 2011. "Many Fields of Battle How Cost Structure Affects Competition Across Multiple Markets," Journal of Transport Economics and Policy, University of Bath, vol. 45(1), pages 21-40, January.
    • Handle: RePEc:tpe:jtecpo:v:45:y:2011:i:1:p:21-40
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    Citations

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    Cited by:

    1. Brueckner, Jan K. & Luo, Dan, 2014. "Measuring strategic firm interaction in product-quality choices: The case of airline flight frequency," Economics of Transportation, Elsevier, vol. 3(1), pages 102-115.
    2. Zou, Bo & Hansen, Mark, 2014. "Flight delay impact on airfare and flight frequency: A comprehensive assessment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 54-74.
    3. Netherlands Bureau for Economic Policy Analysis, 2015. "Study on the economic effects of the current VAT rules for passenger transport," Taxation Studies 0055, Directorate General Taxation and Customs Union, European Commission.
    4. Lijesen, Mark & Behrens, Christiaan, 2017. "The spatial scope of airline competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 99(C), pages 1-13.
    5. Ng, Kam To & Fu, Xiaowen & Lee, Jaewoon & Yamaguchi, Katsuhiro & Zhu, Chuanyan, 2023. "The Effects of Bankruptcy on Airline Yield and Frequency: The case of the duopolistic domestic market in Japan," Transport Policy, Elsevier, vol. 142(C), pages 28-36.
    6. Murakami, Hideki & Asahi, Ryota, 2011. "Multimarket Contact And Market Power: A Case Of The U.S. Airline Industry," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 45(1), pages 81-88, October.
    7. Hideki Murakami & Ryota Asahi, 2011. "An empirical analysis of the effect of multimarket contacts on air carriers' pricing behaviors: A case of the U.S," Discussion Papers 2011-35, Kobe University, Graduate School of Business Administration.
    8. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2020. "Is multimarket contact an antitrust concern? A case of China’s airline market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 515-526.
    9. Zou, Li & Yu, Chunyan & Dresner, Martin, 2012. "Multimarket contact, alliance membership, and prices in international airline markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(2), pages 555-565.

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