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Discussion Paper Details

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Title: Market Structure and Competition in Airline Markets

Author(s): Federico Ciliberto, Charles Murry and Elie Tamer

Publication Date: November 2018

Keyword(s): Entry, market power, market structure, merger, multiple equilibria, oligopoly and Self-selection

Programme Area(s): Industrial Organization

Abstract: We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions while allowing for correlations between unobserved cost and demand shocks. We use our framework to account for selection in the pricing stage. We estimate the model using data from the US airline industry and find that not accounting for endogenous entry leads to biased estimation of demand elasticities. We simulate a merger between American and US Airways and find that product repositioning and post-merger outcomes depend on how we model the characteristics of the merged firm as a function of the pre-merger firms' characteristics.

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Bibliographic Reference

Ciliberto, F, Murry, C and Tamer, E. 2018. 'Market Structure and Competition in Airline Markets'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13346