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Exchanges of Cost Information in the Airline Industry

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  • Armantier, Olivier
  • Richard, Oliver

Abstract

We empirically analyze exchanges of cost information in a multimarket oligopoly model for the airline industry with entry and incomplete information on marginal costs. We develop an algorithm to solve the Nash equilibrium numerically. We estimate the structural model of supply decisions using data on the American Airlines and United Airlines duopoly at Chicago O'Hare airport. Our results provide probabilities of entry, expected quantities, prices, and profits in each market. Given the estimated parameters, we simulate competition under a hypothetical agreement to exchange cost information. We find that such exchanges would benefit airlines while only moderately costing consumers. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • Armantier, Olivier & Richard, Oliver, 2003. "Exchanges of Cost Information in the Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 461-477, Autumn.
    • Handle: RePEc:rje:randje:v:34:y:2003:i:3:p:461-77
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    References listed on IDEAS

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    2. Doi, Naoshi & Ohashi, Hiroshi, 2019. "Market structure and product quality: A study of the 2002 Japanese airline merger," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 158-193.
    3. Ivaldi, Marc & Petrova, Milena J & Urdanoz, Miguel, 2014. "AirTicket Sales as Bids from Airline Alliances," TSE Working Papers 14-546, Toulouse School of Economics (TSE), revised 26 Jan 2015.
    4. Choe, Chongwoo & Matsushima, Noriaki & Tremblay, Mark J., 2022. "Behavior-based personalized pricing: When firms can share customer information," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    5. Chongwoo Choe & Jiajia Cong & Chengsi Wang, 2024. "Softening Competition Through Unilateral Sharing of Customer Data," Management Science, INFORMS, vol. 70(1), pages 526-543, January.
    6. Henry Ergas, 2009. "Error and Design: Economics in (and some Economics of) the Australian Competition Tribunal," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 16(3), pages 71-94.
    7. Chongwoo Choe & Noriaki Matsushima & Mark J. Tremblay, 2020. "Behavior-Based Personalized Pricing: When Firms Can Share Customer Information," ISER Discussion Paper 1083, Institute of Social and Economic Research, Osaka University.
    8. Wang, Kun & Gong, Qiang & Fu, Xiaowen & Fan, Xingli, 2014. "Frequency and aircraft size dynamics in a concentrated growth market: The case of the Chinese domestic market," Journal of Air Transport Management, Elsevier, vol. 36(C), pages 50-58.
    9. Amir, Rabah & Jin, Jim Y. & Troege, Michael, 2010. "Robust results on the sharing of firm-specific information: Incentives and welfare effects," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 855-866, September.
    10. Pedro M. Gardete, 2016. "Competing Under Asymmetric Information: The Case of Dynamic Random Access Memory Manufacturing," Management Science, INFORMS, vol. 62(11), pages 3291-3309, November.
    11. Creane, Anthony, 2007. "Productivity information in vertical sharing agreements," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 821-841, August.
    12. Olivier Armantier & Oliver Richard, 2008. "Domestic airline alliances and consumer welfare," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 875-904, September.

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