Do Airlines in Chapter 11 Harm Their Rivals? Bankruptcy and Pricing Behavior in U.S. Airline Markets
AbstractThe behavior of firms in financial distress has attracted considerable academic and policy interest in recent years. The turmoil in the U.S. airline industry has triggered much of the public policy discussion, as some observers have argued that airlines in financial distress, particularly those operating under Chapter 11 bankruptcy protection, reduce prices to the point of harming themselves and their competitors. This study investigates the pricing strategies of bankrupt airlines and their rivals. The data suggest that an airline's prices typically decline somewhat before it files for bankruptcy protection and remain slightly depressed over the subsequent two or three quarters. We find no evidence that competitors of the bankrupt airline lower their prices, however, nor that they lose passengers to their bankrupt rival. These results indicate that bankrupt carriers do not harm the financial health of their competitors.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5047.
Date of creation: Feb 1995
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Find related papers by JEL classification:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
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