Discussion Paper Details

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Title: Coordinated Capacity Reductions and Public Communication in the Airline Industry

Author(s): Gaurab Aryal, Federico Ciliberto and Benjamin Leyden

Publication Date: February 2018

Keyword(s): Airlines, Capacity Discipline, Collusion, communication and Text Data

Programme Area(s): Industrial Organization

Abstract: We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. To this end, we first use text analytics to build a novel dataset on communication among airlines about their capacity choices. Estimates from our preferred specification show that when all legacy airlines in a market discuss the concept of "capacity discipline," they reduce offered seats by 1.79%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained by other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional results from conditional-exogeneity tests and control function estimates confirm our interpretation.

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Bibliographic Reference

Aryal, G, Ciliberto, F and Leyden, B. 2018. 'Coordinated Capacity Reductions and Public Communication in the Airline Industry'. London, Centre for Economic Policy Research.