Effects of multimarket contact on airlines' pricing behaviors: Empirical evidences and future perspective
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A number of empirical studies have shown that multimarket contacts facilitate collusive behaviors between full-service carriers (hereafter, FSCs) in the U.S. airline industry. This paper empirically investigates the effects of multimarket contacts of low-cost carriers (hereafter, LCCs) and FSCs on air carriers’ pricing behaviors, and on their behaviors towards mergers. Simultaneous demand and price (pseudo-supply) equations are estimated to analyze these issues of multimarket contacts using the data of the top 30 air markets in the U.S. We found that multimarket contacts among FSCs led to high airfares due to collusion among carriers, that even the existence of LCC(s) led to collusive impacts, but the degree of impact on airfares depended on market structures, that LCCs’ entry did not eliminate the collusive effect coming from multimarket contact in routes where LCCs entry, and carriers promoted collusive behaviors where multimarket contacts increased by LCCs’ entry, and that the relationship between multimarket contacts and mergers might differ depending on characters that merging and merged carriers have
Abstract
A number of empirical studies have shown that multimarket contacts facilitate collusive behaviors between full-service carriers (hereafter, FSCs) in the U.S. airline industry. This paper empirically investigates the effects of multimarket contacts of low-cost carriers (hereafter, LCCs) and FSCs on air carriers’ pricing behaviors, and on their behaviors towards mergers. Simultaneous demand and price (pseudo-supply) equations are estimated to analyze these issues of multimarket contacts using the data of the top 30 air markets in the U.S. We found that multimarket contacts among FSCs led to high airfares due to collusion among carriers, that even the existence of LCC(s) led to collusive impacts, but the degree of impact on airfares depended on market structures, that LCCs’ entry did not eliminate the collusive effect coming from multimarket contact in routes where LCCs entry, and carriers promoted collusive behaviors where multimarket contacts increased by LCCs’ entry, and that the relationship between multimarket contacts and mergers might differ depending on characters that merging and merged carriers have
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