PRICE-COST MARGINS IN THE US AIRLINE INDUSTRY USING A CONJECTURAL VARIATION APPROACH

This paper presents an economic analysis of the U.S. airline industry since deregulation, using different theoretical models of oligopoly for explicit hypothesis testing. This paper calculates price-cost margins in selected airport-pair markets originating in Atlanta. This focus on the micro-economic level allows more detailed and more precise look at market conduct. Atlanta was chosen because it is a major hub for Delta, one of the largest airlines, and which dominates the Atlanta Hartfield International Airport. The New Empirical Industrial Organization provides techniques to study market conduct and market power that can cover the oligopoly range, from the Bertrand case on one end through the Cournot duopoly to the collusive cartel. The analysis finds that most of behavior was consistent with the Cournot solution, though there were substantial deviations at each extreme. The existence of the Bertrand outcome, equivalent to perfect competition is rejected. A key element is the existence of barriers to entry. Their removal would go a long way to reaching the perfect competitive state.

  • Availability:
  • Corporate Authors:

    University of Bath

    Claverton Down
    Bath, Avon  United Kingdom  BA2 7AY
  • Authors:
    • Fischer, T
    • Kamerschen, D R
  • Publication Date: 2003-5

Language

  • English

Media Info

Subject/Index Terms

Filing Info

  • Accession Number: 00963471
  • Record Type: Publication
  • Source Agency: UC Berkeley Transportation Library
  • Files: BTRIS, TRIS
  • Created Date: Oct 2 2003 12:00AM