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Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry

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  • Ciliberto, Federico
  • Williams, Jonathan

Abstract

We nest conjectural parameters into a standard oligopoly model. The conjectural parameters are modeled as functions of multimarket contact. Using data from the US airline industry, we find: i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.

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  • Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24888
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    Cited by:

    1. Brueckner Jan K. & Picard Pierre M., 2013. "Airline Alliances, Carve-Outs and Collusion," Review of Network Economics, De Gruyter, vol. 12(2), pages 211-227, June.
    2. Feinberg, Robert M., 2014. "Price effects of multimarket contact among movie chains in small US metropolitan areas," Economics Letters, Elsevier, vol. 123(1), pages 6-8.
    3. Michel, Christian, 2013. "Identification and Estimation of Intra-Firm and Industry Competition via Ownership Change," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80488, Verein für Socialpolitik / German Economic Association.
    4. Feinberg, Robert M., 2013. "Multimarket contact and export entry," Economics Letters, Elsevier, vol. 121(1), pages 82-84.
    5. Wei-Min Hu & Junji Xiao & Xiaolan Zhou, 2014. "Collusion or Competition? Interfirm Relationships in the Chinese Auto Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 62(1), pages 1-40, March.
    6. 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.
    7. Robert M. Feinberg, 2015. "“Exports‐at‐Risk”: The Effect of Multimarket Contact in International Trade," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 769-781, January.
    8. Feinberg Robert M., 2015. "Pricing of First-Run Movies in Small U.S. Metropolitan Areas: Multimarket Contact and Chain Effects," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 1-13, January.
    9. Christian, Michel, 2013. "Identification and Estimation of Intra-Firm and Industry Competition via Ownership Change," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 409, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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    Keywords

    Multimarket Contact; Collusion; Differentiated Products; Airport Facilities; Airline Industry;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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