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Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front. Econ. China    2017, Vol. 12 Issue (1) : 66-93    https://doi.org/10.3868/s060-006-017-0004-0
Orginal Article |
Welfare Analysis of Tacit Coordination in the U.S. Airline Industry
Xiaolan Zhou()
Faculty of Economics and Management,East China Normal University,Shanghai 200062,China
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Abstract

This paper studies airlines’ competitive behavior in the U.S. airline industry, focusing on 2014 data. I use a structural model to estimate demand and test several supply models, including noncooperative competition, perfect collusion, and tacit coordination. There are three different types of tacit coordination, formed by multimarket contact, common ownership, and codeshare agreement, respectively. I find that the model that fits the data best is a tacit coordination model with coalitions between airlines with at least 30% of their markets overlapped and using price rather than quantity as the strategic variable. I further analyze the consumer welfare loss, each carrier’s profit gains, and changes in market variables due to the tacit coordination.

Keywords multimarket contact      common ownership      codeshare      discrete choice model      nonnested test      welfare analysis     
Issue Date: 27 April 2017
 Cite this article:   
Xiaolan Zhou. Welfare Analysis of Tacit Coordination in the U.S. Airline Industry[J]. Front. Econ. China, 2017, 12(1): 66-93.
 URL:  
http://academic.hep.com.cn/fec/EN/10.3868/s060-006-017-0004-0
http://academic.hep.com.cn/fec/EN/Y2017/V12/I1/66
[1] YAO Bin. Research on the choice of RMB exchange rate regime ―Analysis based on the welfare[J]. Front. Econ. China, 2008, 3(3): 356-379.
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