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.
Volume (Year): 109 (1994)
Issue (Month): 2 (May)
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