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Multimarket Contact and Welfare Implications for Airline Passengers

Author

Listed:
  • Yimga Jules O.

    (School of Business, Embry-Riddle Aeronautical University, 3700 Willow Creek Road, Prescott 86301, AZ, USA)

Abstract

When conducting routine welfare analysis, regulators typically associate the exercise of market power to internal market characteristics such as market shares. However, some researchers argue that factors that are external to a market such as contact across markets may have an impact on market outcomes. An interesting but unanswered question is: how do cross-market factors such as multimarket contact affect consumer welfare? Using a nested logit demand model for air travel, we are able to monetarily estimate the consumer welfare effects of multimarket contact. We find that multimarket contact results in a consumer welfare loss of $0.57 per contact. Extrapolating this welfare cost across consumers and across products proves to be quite sizeable. These negative welfare effects are stronger in long haul markets.

Suggested Citation

  • Yimga Jules O., 2022. "Multimarket Contact and Welfare Implications for Airline Passengers," Review of Law & Economics, De Gruyter, vol. 18(1), pages 143-178, March.
    • Handle: RePEc:bpj:rlecon:v:18:y:2022:i:1:p:143-178:n:1
    DOI: 10.1515/rle-2021-0028
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    Citations

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    Cited by:

    1. Isogai, Shigeki & Shen, Chaohai, 2023. "Multiproduct firm’s reputation and leniency program in multimarket collusion," Economic Modelling, Elsevier, vol. 125(C).
    2. Le, Huubinh B. & Yimga, Jules O., 2023. "Codeshare restrictions as antitrust remedy," Transport Policy, Elsevier, vol. 138(C), pages 17-24.

    More about this item

    Keywords

    multimarket contact; airlines; consumer welfare; nested logit demand;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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