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A Dynamic Model of Airline Competition

Author

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  • Fang Ying

    (Department of Economics, Rice University)

  • Sickles Robin C.

    (Department of Economics, Rice University)

Abstract

We develop a dynamic model of collusion in airport-pair routes for selected US airlines and specify the first order conditions using a state-space representation that is estimated by Kalman-filtering techniques using the Databank 1A (DB1A) Department of Transportation (DOT) data during the period 1979I-1988IV. We consider two airlines, American (AA) and United (UA) and four city-pairs. Our measure of market power is based on the shadow value of long-run profits in a two-person strategic dynamic game and we find evidence of relative market power of AA in three of the four city pairs we analyze.

Suggested Citation

  • Fang Ying & Sickles Robin C., 2007. "A Dynamic Model of Airline Competition," Review of Network Economics, De Gruyter, vol. 6(3), pages 1-17, September.
    • Handle: RePEc:bpj:rneart:v:6:y:2007:i:3:n:6
    DOI: 10.2202/1446-9022.1125
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    Cited by:

    1. Brueckner Jan K. & Picard Pierre M., 2013. "Airline Alliances, Carve-Outs and Collusion," Review of Network Economics, De Gruyter, vol. 12(2), pages 211-227, June.

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