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Many Fields of Battle How Cost Structure Affects Competition Across Multiple Markets

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  • Li Zou
  • Martin Dresner
  • Robert Windle

Abstract

Traditional analysis of multi-point competition suggests that firms compete less intensely with one another when they have strategic contacts across multiple markets. However, this mutual forbearance argument has not incorporated production cost differences between firms as moderating factors. Based on the US domestic air travel data, we find that the collusion-facilitating effects (as measured by airfare increases) from multi-market contact hold when multi-market contact occurs among carriers with either uniformly low costs or uniformly high costs, although, in some cases, carrier pricing is also influenced by multi-market contact between airlines with different cost structures. © 2011 LSE and the University of Bath

Suggested Citation

  • Li Zou & Martin Dresner & Robert Windle, 2011. "Many Fields of Battle How Cost Structure Affects Competition Across Multiple Markets," Journal of Transport Economics and Policy, University of Bath, vol. 45(1), pages 21-40, January.
  • Handle: RePEc:tpe:jtecpo:v:45:y:2011:i:1:p:21-40
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    Cited by:

    1. Hideki Murakami & Ryota Asahi, 2011. "An empirical analysis of the effect of multimarket contacts on air carriers' pricing behaviors: A case of the U.S," Discussion Papers 2011-35, Kobe University, Graduate School of Business Administration.
    2. Zou, Bo & Hansen, Mark, 2014. "Flight delay impact on airfare and flight frequency: A comprehensive assessment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 54-74.
    3. Lijesen, Mark & Behrens, Christiaan, 2017. "The spatial scope of airline competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 99(C), pages 1-13.

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