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Long Run Properties of Technical Efficiency in the U.S. Airline Industry

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Author Info
Ila M. Semenick Alam
Robin C. Sickles

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Abstract

This paper takes an innovative approach to test the relationship between technical efficiency and the market structure hypothesis which states that competitive pressure enhances relative efficiency. DEA and FDH time series of technical efficiency scores, for a panel of 11 US airlines observed quarterly during 1970-1990, are examined for cointegration and convergence. For almost all firm pairs (>90% for both efficiency measures), the null hypothesis of cointegration cannot be rejected; meanwhile, the null of no cointegration is rejected for approximately one-third of the firm pairs. Furthermore, convergence tests document less dispersion in firm performance over time. These results indicate that the scores move together and, in fact, the firms are becoming more alike one another in terms of efficiency.

ZUSAMMENFASSUNG - (Langfristige Eigenschaften der technischen Effizienz in der US-Luftfahrtindustrie)
In diesem Beitrag wird ein innovativer Ansatz entwickelt, um die Beziehung zwischen technischer Effizienz und der Marktstrukturhypothese zu überprüfen, die besagt, daß Wettbewerbsdruck die relative Effizienz erhöht. Die DEA- und FDH-Zeitreihen der technischen Effizienz für ein Panel-Datensatz von 11 US-Fluggesellschaften, die während der Periode 1970 bis 1990 beobachtet wurden, werden im Hinblick auf Kointegration und Konvergenz analysiert. Für nahezu alle Unternehmenspaare (mehr als 90% bei beiden Effizienzmaßen) kann die Nullhypothese der Kointegration nicht zurückgewiesen werden, wo hingegen die Nullhypothese, daß keine Kointegration vorliegt, für etwa ein Drittel der Unternehmenspaare zurückgewiesen wird. Außerdem zeigt der Konvergenztest, daß die Streuung des Unternehmenserfolgs im Zeitablauf abnimmt. Die Ergebnisse deuten darauf hin, daß die Effizienzwerte sich auf einander zu bewegen und daß in der Tat, die Unternehmen im Hinblick auf Effizienz sich immer ähnlicher werden.

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Publisher Info
Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 97-25.

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Length: 19 pages
Date of creation: Oct 1997
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Handle: RePEc:wzb:wzebiv:fsiv97-25

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  2. Sickles, Robin C., 1985. "A nonlinear multivariate error components analysis of technology and specific factor productivity growth with an application to the U.S. Airlines," Journal of Econometrics, Elsevier, vol. 27(1), pages 61-78, January. [Downloadable!] (restricted)
  3. Tulkens, Henry & Eeckaut, Philippe van den, 1993. "Non Parametric Efficiency, Progress and Regress Measures for Panel Data: Methodological Aspects," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
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  4. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December. [Downloadable!] (restricted)
  5. Singal, Vijay, 1996. "Airline Mergers and Competition: An Integration of Stock and Product Price Effects," Journal of Business, University of Chicago Press, vol. 69(2), pages 233-68, April. [Downloadable!] (restricted)
  6. Cheung, Yin-Wong & Diebold, Francis X., 1994. "On maximum likelihood estimation of the differencing parameter of fractionally-integrated noise with unknown mean," Journal of Econometrics, Elsevier, vol. 62(2), pages 301-316, June. [Downloadable!] (restricted)
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  7. Atkinson, Scott E & Cornwell, Christopher, 1994. "Parametric Estimation of Technical and Allocative Inefficiency with Panel Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 231-43, February. [Downloadable!] (restricted)
  8. Allen N. Berger & Timothy H. Hannan, 1994. "The efficiency cost of market power in the banking industry: a test of the "quiet life" and related hypotheses," Finance and Economics Discussion Series 94-36, Board of Governors of the Federal Reserve System (U.S.).
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  9. repec:cup:etheor:v:10:y:1994:i:1:p:95-115 is not listed on IDEAS
  10. Fare, Rolf & Shawna Grosskopf & Mary Norris & Zhongyang Zhang, 1994. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries," American Economic Review, American Economic Association, vol. 84(1), pages 66-83, March. [Downloadable!] (restricted)
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  15. Button, Kenneth J & Weyman-Jones, Thomas G, 1992. "Ownership Structure, Institutional Organization and Measured X-Efficiency," American Economic Review, American Economic Association, vol. 82(2), pages 439-45, May. [Downloadable!] (restricted)
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  17. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March. [Downloadable!] (restricted)
  18. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200. [Downloadable!] (restricted)
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