The Price of Anti-Competitive Behaviour: Evidence from the U.S. Airline Industry
Economics Seminar by Iannis Kerkemezos (University of Rotterdam) - B31 - Sem.Comte
February 2018, Friday 23 (02:00 pm)
This paper presents a novel strategy to empirically identify engagement in anti-competitive behaviour by firms in monopoly and duopoly markets. Moreover, it provides an estimate of the resulting price premium that consumers pay. This is done by examining transitions across market structures that take place because of firm entry or exit and classifying different types of markets within a given structure based on their structural history. Using panel data from the U.S. airline industry between 1993 and 2014, we find that a ”quiet-life” duopoly prices significantly higher compared to a duopoly that comes about by entry in monopoly, and that a ”quiet-life” monopoly prices significantly lower compared to a monopoly that comes about by exit in duopoly, but still significantly higher than both types of duopoly. These effects, both economically and statistically significant, suggest that collusion is likely to occur in duopoly markets and that entry deterring strategies, such as limit pricing, are likely to be deployed in monopoly markets.