Bontemps, Christian, Gualdani, Cristina and Remmy, Kevin (2023) Price Competition and Endogenous Product Choice in Networks: Evidence from the US Airline Industry. TSE Working Paper, n. 23-1415, Toulouse

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We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes.

Item Type: Monograph (Working Paper)
Language: English
Date: March 2023
Place of Publication: Toulouse
Uncontrolled Keywords: Endogenous market structure, Networks, Airlines, Oligopoly, Product repositioning, Mergers, Remedies
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 10 Mar 2023 08:32
Last Modified: 04 Apr 2023 07:58
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