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Demand Shocks, Capacity Coordination and Industry Performance: Lessons from Economic Laboratory

  • Kyle Hampton


    (Department of Economics, University of Alaska Anchorage)

  • Katerina Sherstyuk


    (Department of Economics, University of Hawaii at Manoa)

Antitrust exemptions granted to businesses under extenuating circumstances are often justified by the argument that they benefit the public by helping producers adjust to otherwise difficult economic circumstances. Such exemptions may allow firms to coordinate their capacities, as was the case of post-September 11, 2001 antitrust immunity granted to Aloha and Hawaiian Airlines. We conduct economic laboratory experiments to determine the effects of explicit capacity coordination on oligopoly firms' abilities to adjust to negative demand shocks and on industry prices. The results suggest that capacity coordination speeds the adjustment process, but also has a clear pro-collusive effect on firm behavior.

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Paper provided by University of Alaska Anchorage, Department of Economics in its series Working Papers with number 2010-09.

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Date of creation: 2010
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Handle: RePEc:ala:wpaper:2010-09
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