Living by the "Golden Rule": Multimarket Contact in the U.S. Airline Industry
This paper examines empirically the effects of multimarket contact on pricing in the U.S. airline industry. The analysis of the time-series and cross-sectional variability of airline fares in the 1,000 largest domestic city-pair routes reveals the presence of statistically significant and quantitatively important multimarket effects--fares are higher in city-pair markets served by carriers with extensive interroute contacts. These findings are consistent with the claims of industry experts that airlines live by the 'golden rule'; i.e., that they refrain from initiating aggressive pricing actions in a given route for fear of what their competitors might do in other jointly contested routes. Copyright 1994, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 109 (1994)
Issue (Month): 2 (May)
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