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Coordinated Capacity Reductions and Public Communication in the Airline Industry

Author

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  • Aryal, Gaurab
  • Ciliberto, Federico
  • Leyden, Benjamin

Abstract

We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. Using text analytics, we build a novel dataset on communication among airlines about their capacity choices. Our estimates show that when all legacy airlines in a market discuss the concept of \capacity discipline," they reduce offered seats by between 1.14% to 1.48%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional evidence from conditional-exogeneity tests and control function estimates confirms our interpretation.

Suggested Citation

  • Aryal, Gaurab & Ciliberto, Federico & Leyden, Benjamin, 2018. "Coordinated Capacity Reductions and Public Communication in the Airline Industry," CEPR Discussion Papers 12730, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12730
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    Cited by:

    1. Awaya, Yu & Krishna, Vijay, 2019. "Communication and cooperation in repeated games," Theoretical Economics, Econometric Society, vol. 14(2), May.
    2. Thomas Bourveau & Guoman She & Alminas Žaldokas, 2020. "Corporate Disclosure as a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations," Journal of Accounting Research, Wiley Blackwell, vol. 58(2), pages 295-332, May.
    3. Lysle Boller & Fiona Scott Morton, 2020. "Testing the Theory of Common Stock Ownership," NBER Working Papers 27515, National Bureau of Economic Research, Inc.
    4. Jeremy Bertomeu & John Harry Evans & Mei Feng & Ayung Tseng, 2021. "Tacit Collusion and Voluntary Disclosure: Theory and Evidence from the U.S. Automotive Industry," Management Science, INFORMS, vol. 67(3), pages 1851-1875, March.

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    More about this item

    Keywords

    Airlines; Capacity Discipline; Collusion; communication; Text Data;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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