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Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry

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  • Federico Ciliberto
  • Jonathan W. Williams

Abstract

type="main"> We provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using a flexible model of oligopolistic behavior, where conduct parameters are modelled as functions of multimarket contact. We find (i) carriers with little multimarket contact do not cooperate in setting fares, whereas 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 equilibrium fares; (iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; (iv) assuming firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.

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  • Federico Ciliberto & Jonathan W. Williams, 2014. "Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 764-791, December.
  • Handle: RePEc:bla:randje:v:45:y:2014:i:4:p:764-791
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    JEL classification:

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

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