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The Nonlinear Effects of Market Structure on Service Quality: Evidence from the U.S. Airline Industry

Author

Listed:
  • Kang Hua Cao

    (Hong Kong Baptist University)

  • Betty Krier

    (U.S. Department of Transportation Office of Inspector General)

  • Chia-Mei Liu

    (Federal Aviation Administration)

  • Brian McNamara

    (Federal Reserve Bank of Chicago)

  • Jerrod Sharpe

    (U.S. Department of Transportation Office of Inspector General)

Abstract

This paper revisits the topic of the effect of airline competition on service quality, but allowing for nonlinear effects. Using a panel of monthly data for 5472 route-carrier combinations from 2005:4Q through 2012:4Q, we find that the average length of flight delays and cancellation rates increase with the concentration level. Worse service quality is linked to less competition. In addition, we find that the relationships between our measures of service quality and market concentration are nonlinear, so that the scale of the effects of a given change in airline competition appears to depend on the initial level of competition.

Suggested Citation

  • Kang Hua Cao & Betty Krier & Chia-Mei Liu & Brian McNamara & Jerrod Sharpe, 2017. "The Nonlinear Effects of Market Structure on Service Quality: Evidence from the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 43-73, August.
    • Handle: RePEc:kap:revind:v:51:y:2017:i:1:d:10.1007_s11151-016-9544-x
    DOI: 10.1007/s11151-016-9544-x
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    References listed on IDEAS

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    8. Ren, Junqiushi, 2023. "Financial conditions and incumbent quality responses to entry: Evidence from airlines' on-time performance," Journal of Air Transport Management, Elsevier, vol. 107(C).
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    10. Calzada, Joan & Fageda, Xavier, 2023. "Airport dominance, route network design and flight delays," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).

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    More about this item

    Keywords

    Airlines; Competition; Flight delays and cancellations; Market structure; Nonlinear; Service quality;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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