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Living by the "Golden Rule": Multimarket Contact in the U.S. Airline Industry

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Author Info
Evans, William N
Kessides, Ioannis N

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Abstract

This paper examines empirically the effects of multimarket contact on pricing in the U.S. airline industry. The analysis of the time-series and cross-sectional variability of airline fares in the 1,000 largest domestic city-pair routes reveals the presence of statistically significant and quantitatively important multimarket effects--fares are higher in city-pair markets served by carriers with extensive interroute contacts. These findings are consistent with the claims of industry experts that airlines live by the 'golden rule'; i.e., that they refrain from initiating aggressive pricing actions in a given route for fear of what their competitors might do in other jointly contested routes. Copyright 1994, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://links.jstor.org/sici?sici=0033-5533%28199405%29109%3A2%3C341%3ALBT%22RM%3E2.0.CO%3B2-Y&origin=repec
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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 109 (1994)
Issue (Month): 2 (May)
Pages: 341-66
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Handle: RePEc:tpr:qjecon:v:109:y:1994:i:2:p:341-66

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  1. Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 1999. "Union Power and Product Market Competition: Evidence from the Airline Industry," CIG Working Papers FS IV 99-05, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  2. Hans Degryse & Steven Ongena, 2004. "Bank orientation and industry specialization," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 412-427. [Downloadable!]
  3. Leola B. Ross, . "When Will an Airline Stand Its Ground? An Analysis of Fare Wars," Working Papers 9703, East Carolina University, Department of Economics. [Downloadable!]
  4. Degryse, Hans & Ongena, Steven, 2006. "The impact of competition on bank orientation," Discussion Paper 68, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  5. Javier Gimeno, 2002. "The performance effects of unintended and purposive multimarket contact," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 209-224. [Downloadable!]
  6. Srabana Gupta, 2001. "The Effect of Bid Rigging on Prices: A Study of the Highway Construction Industry," Review of Industrial Organization, Springer, vol. 19(4), pages 451-465, December. [Downloadable!] (restricted)
  7. Frank Verboben, 1997. "Localized Competition, Multimarket Operation and Collusive Behavior," CIG Working Papers FS IV 97-03, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  8. Steven Pilloff, 1999. "Multimarket Contact in Banking," Review of Industrial Organization, Springer, vol. 14(2), pages 163-182, March. [Downloadable!] (restricted)
  9. Lazzarini, Sergio G., 2002. "The Performance Implications of Membership in Competing Firm Constellations: Evidence from the Global Airline Industry," Ibmec Working Papers wpe_23, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  10. Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 2002. "Endogenous Costs and Price-Cost Margins," Discussion Papers of DIW Berlin 294, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  11. Abdelmajid Amine & Faouzi Bensebaa, 2005. "Intensité concurrentielle entre lignes de produits rivales:un éclairage par la théorie de la concurrence multimarchés," Revue Finance Contrôle Stratégie, Editions Economica, vol. 8(2), pages 5-37, June. [Downloadable!]
  12. Zhiqi Chen & Thomas Ross, 2007. "Markets Linked by Rising Marginal Costs: Implications for Multimarket Contact, Recoupment, and Retaliatory Entry," Review of Industrial Organization, Springer, vol. 31(1), pages 1-21, August. [Downloadable!] (restricted)
  13. Ongena, S. & Degryse, H.A., 2003. "The impact of competition on bank orientation and specialization," Discussion Paper 108, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  14. Lawrence J. White, 2002. "Trends in Aggregate Concentration in the United States," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 137-160, Fall. [Downloadable!] (restricted)
  15. Riccardo De Bonis & Annalisa Ferrando, 2000. "The multimarket contacts theory; an application to Italian banks," Temi di discussione (Economic working papers) 387, Bank of Italy, Economic Research Department. [Downloadable!]
  16. repec:bep:eapcon:v:5:y:2006:i:1:p:1420-1420 is not listed on IDEAS
  17. Verboven, F., 1995. "Localized Competition, Multimarket Operation and Collusive Behavior," Discussion Paper 49, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  18. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  19. Spagnolo, Giancarlo, 1996. "Multimarket Contact, Concavity, and Collusion: on Extremal Equilibria of Interdependent Supergames," Working Paper Series in Economics and Finance 104, Stockholm School of Economics, revised 29 Apr 1998. [Downloadable!]
  20. Lucio Fuentelsaz & Jaime Gómez, . "Multipoint Competition, Mutual Forbearance and Entry into Geographic Markets," Studies on the Spanish Economy 127, FEDEA. [Downloadable!]
  21. Lawrence White, 2002. "Staples-Office Depot and UP-SP: An Antitrust Tale of Two Proposed Mergers," Working Papers 02-12, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  22. Maria J. Gil-Molto & Claudio A. Piga, 2005. "Entry and Exit in a Liberalised Market," Discussion Paper Series 2005_10, Department of Economics, Loughborough University, revised May 2006. [Downloadable!]
    Other versions:
  23. Kathy J. Hayes & Leola B. Ross, . "Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?," Working Papers 9702, East Carolina University, Department of Economics. [Downloadable!]
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