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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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24888.

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Date of creation: 01 Aug 2010
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Handle: RePEc:pra:mprapa:24888

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Keywords: Multimarket Contact; Collusion; Differentiated Products; Airport Facilities; Airline Industry;

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Citations

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Cited by:
  1. Jan K. Brueckner & Pierre M. Picard, 2011. "Airline Alliances, Carve-Outs and Collusion," CESifo Working Paper Series 3593, CESifo Group Munich.
  2. Robert M. Feinberg, 2011. "Exports-at-Risk: the Effect of Multi-Market Contact in International Trade"," Working Papers 2011-09, American University, Department of Economics.
  3. Feinberg, Robert M., 2013. "Multimarket contact and export entry," Economics Letters, Elsevier, vol. 121(1), pages 82-84.
  4. 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.
  5. Robert M. Feinberg, 2013. "Price Effects of Multimarket Contact Among Movie Chains in Small U.S. Metropolitan Areas," Working Papers 2013-15, American University, Department of Economics.

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