Measuring Competition in the U.S. Airline Industry Using the Rosse-Panzar Test and Cross-Sectional Regression Analyses
We employ the Rosse-Panzar test to assess market performance in selected airport-pairs originating from Atlanta. The Rosse-Panzar test stands in the tradition of the New Empirical Industrial Organization. It is based on the comparative statics of a reduced form revenue equation. Therefore, it is less powerful than structural models, but it offers the advantage of less stringent data requirements and reduces the risk of model misspecifications. The test statistic allows us in most airport-pairs to reject both conducts consistent with the Bertrand outcome, which is equivalent to perfect competition, and the collusive outcome, which is equivalent to joint profit-maximization. Rather, the test statistic suggests that behavior is consistent with a range of intermediate outcomes between the two extremes, including, but not limited to the Cournot oligopoly. In the second part of the paper, a cross-section pricing regression complements the Rosse-Panzar test. It shows that the presence of low-cost competition in an airport-pair reduces the average fare significantly.
Volume (Year): VI (2003)
Issue (Month): (May)
|Contact details of provider:|| Postal: |
Phone: (5411) 6314-3000
Fax: (5411) 4314-1654
Web page: http://www.cema.edu.ar/publicaciones/jae.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-56, June.
- Gautam Gowrisankaran, 2002. "Competition and regulation in the airline industry," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan18.
- Ashenfelter, Orley & Sullivan, Daniel, 1987. "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 483-98, June.
- Peteraf, Margaret A & Reed, Randal, 1994. "Pricing and Performance in Monopoly Airline Markets," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 193-213, April.
- Alli Nathan & Edwin H. Neave, 1989. "Competition and Contestability in Canada's Financial System: Empirical Results," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 576-94, August.
- Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
- Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
When requesting a correction, please mention this item's handle: RePEc:cem:jaecon:v:6:y:2003:n:1:p:73-93. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.