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Bankruptcy and Product-Market Competition: Evidence from the Airline Industry

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  • Ciliberto, Federico
  • Schenone, Carola

Abstract

We investigate the effects of Chapter 11 bankruptcy filings on product market competition using data from the US airline industry. We find that bankrupt airlines permanently downsize their national route structure, their airport-specific networks, and their route-specific flight frequency and capacity. We also find that bankrupt airlines lower their route-specific prices while under bankruptcy protection, and increase them after emerging. We do not find robust evidence of significant changes by the bankrupt airline's competitors along any of the dimensions above. Overall, our results are consistent with the hypothesis that bankruptcy is the result of a war of attrition over capacity and network cutbacks.

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  • Ciliberto, Federico & Schenone, Carola, 2010. "Bankruptcy and Product-Market Competition: Evidence from the Airline Industry," MPRA Paper 24914, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24914
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    Cited by:

    1. Ciliberto, Federico & Schenone, Carola, 2012. "Are the bankrupt skies the friendliest?," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1217-1231.
    2. Kristjanpoller, Werner D. & Concha, Diego, 2016. "Impact of fuel price fluctuations on airline stock returns," Applied Energy, Elsevier, vol. 178(C), pages 496-504.
    3. Hüschelrath, Kai & Müller, Kathrin, 2012. "The competitive effects of firm exit: Evidence from the US airline industry," ZEW Discussion Papers 12-037, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Lee, Hwa Ryung, 2009. "Bankruptcies and low-cost Carrier Expansion in the Airline Industry," Department of Economics, Working Paper Series qt8g8639tn, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Buchheit, Steve & Feltovich, Nick, 2010. "Experimental evidence of a sunk–cost paradox: a study of pricing behavior in Bertrand–Edgeworth duopoly," SIRE Discussion Papers 2010-124, Scottish Institute for Research in Economics (SIRE).
    6. Lee, Hwa Ryung, 2009. "Does Bankruptcy Protection Harm the Airline Industry?," Department of Economics, Working Paper Series qt0s40v0x9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    7. William Morrison, Jaap de Wit, 2017. "US Open Skies Agreements and Unlevel Playing Fields," LCERPA Working Papers 0104, Laurier Centre for Economic Research and Policy Analysis, revised 01 Aug 2017.
    8. Akbar, Yusaf & Németh, Adél & Niemeier, Hans-Martin, 2014. "Here we go again…the Permanently Failing Organization: An application to the airline industry in Eastern Europe," Journal of Air Transport Management, Elsevier, vol. 35(C), pages 1-11.
    9. repec:bla:scotjp:v:64:y:2017:i:4:p:419-444 is not listed on IDEAS
    10. Greenfield, Daniel, 2014. "Competition and service quality: New evidence from the airline industry," Economics of Transportation, Elsevier, vol. 3(1), pages 80-89.
    11. Steven L. Puller & Anirban Sengupta & Steven N. Wiggins, 2009. "Testing Theories of Scarcity Pricing in the Airline Industry," NBER Working Papers 15555, National Bureau of Economic Research, Inc.
    12. Gordon M. Phillips & Giorgo Sertsios, 2011. "How Do Firm Financial Conditions Affect Product Quality and Pricing?," NBER Working Papers 17233, National Bureau of Economic Research, Inc.
    13. Hwa Ryung Lee, 2010. "Bankruptcy and low cost carrier expansion in the airline industry," IEW - Working Papers 502, Institute for Empirical Research in Economics - University of Zurich.

    More about this item

    Keywords

    Airline Industry; Bankruptcy; Product Market Competition; Chapter 11; War of Attrition; Capacity Reduction;

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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