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MULTIPLE EQUILIBRIA AND DETERRENCE IN AIRLINE MARKETS.

We use a longitudinal dataset from the U.S. airline industry to estimate three different models for entry games with very general forms of heterogeneity between U.S. carriers in airline markets: a simultaneous game with complete information and two sequential games with or without strategic entry de...

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Published in:Economic Inquiry Vol. 55; no. 1; pp. 319 - 339
Main Authors: Ciliberto, Federico, Zhang, Zhou
Format: Article
Published: Wiley-Blackwell Jan2017
Subjects:
United States
Economic equilibrium
Airline industry
Carriers
Airline industry & economics
Economic research
Online Access:View this record in EBSCOhost
Summary:We use a longitudinal dataset from the U.S. airline industry to estimate three different models for entry games with very general forms of heterogeneity between U.S. carriers in airline markets: a simultaneous game with complete information and two sequential games with or without strategic entry deterrence. In a sequential game with entry deterrence, an incumbent decides whether to incur a cost to deter potential entrants. We show that the model with sequential games with strategic deterrence provides the best fit to the data. We conclude that the results reject the hypothesis of a static model and support the hypothesis of the existence of strategic entry deterrence. ( JEL L1)