Market Structure and Competition in Airline Markets
Bibliographic Data
| ID | 10172335 |
|---|---|
| Authors | Federico Ciliberto (0000-0002-3967-1659, University of Virginia), Charles Murry (0000-0001-8405-2868, Pennsylvania State University), Elie Tamer (Harvard University Press) |
| Year | 2021 |
| Volume | 129 |
| Issue | 11 |
| Pages | 2995-3038 |
| Publication date | 2021-06-11 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0022-3808 • E-ISSN: 1537-534X |
| Publisher | University of Chicago Press (PUBLISHER • US) |
| DOI | 10.1086/715848 |
| OpenAlex | W3123529542 |
| Language | EN |
| Citations received | 5 |
| References cited | 42 |
We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions in oligopolistic markets while allowing for correlations between unobserved fixed costs, marginal costs, and demand shocks. Firms' decisions to enter a market are based on whether they will realize positive profits from entry. We use our framework to quantitatively account for this selection problem in the pricing stage. We estimate this model using cross-sectional data from the US airline industry. We find that not accounting for endogenous entry leads to overestimation of demand elasticities. This, in turn, leads to biased markups, which has implications for the policy evaluation of market power. Our methodology allows us to study how firms optimally decide entry/exit decision in response to a change in policy. We simulate a merger between American and US Airways and we find that the post-merger market structure and prices depend crucially on how we model the characteristics of the post-merger firm as a function of the pre-merger firms' characteristics. Overall, the merged firm has a strong incentive to enter new markets; the merged firm faces a stronger threat of entry from rival legacy carriers, as opposed to low cost carriers; and, post-merger entry mitigates the adverse effects of increased concentration
Barriers to entry · Business · Competition (biology · Cournot competition · Economics · Fixed cost · Free entry · Function (biology · Incentive · Industrial organization · Marginal cost · Market concentration · Market power · Market structure · Microeconomics · Monopoly · Oligopoly · Aviation Industry Analysis and Trends · Merger and Competition Analysis · Transport and Economic Policies
Measuring Market Power in the Ready-to-Eat Cereal Industry
Automobile Prices in Market Equilibrium
Estimating Discrete-Choice Models of Product Differentiation
The Dynamics of Productivity in the Telecommunications Equipment Industry
Sample Selection Bias as a Specification Error
Wage Comparisons--A Selectivity Bias
Entry and Competition in Concentrated Markets
| Unique citing works | 5 |
|---|---|
| Citations per year | 1 |
| Citation span | 2021 - 2026 (6) |
| Citation velocity | current |
| Highly cited | No |
| Citation types | Neutral: 5 |