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Barriers to Entry in the Airline Industry: A Multidimensional Regression-Discontinuity Analysis of AIR-21

Author

Listed:
  • Connan Snider

    (UCLA)

  • Jonathan W. Williams

    (University of North Carolina)

Abstract

We investigate the success of legislation aimed at increasing competition at highly concentrated U.S. airports, mainly by forcing these airports to increase the availability of scarce facilities. We use a multidimensional regression-discontinuity approach to exploit a sharp discontinuity in the law’s implementation and identify its effects. We find that fares decrease by 13.4% (20.2%) in markets with one (both) end point(s) covered. Approximately half of the decline is driven by the entry of low-cost carriers. We find little evidence that the fare declines were accompanied by a diminished quality of service, and passenger volumes increased, which suggests the legislation improved consumer welfare.

Suggested Citation

  • Connan Snider & Jonathan W. Williams, 2015. "Barriers to Entry in the Airline Industry: A Multidimensional Regression-Discontinuity Analysis of AIR-21," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 1002-1022, December.
    • Handle: RePEc:tpr:restat:v:97:y:2015:i:5:p:1002-1022
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    Citations

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    Cited by:

    1. Scott E. Atkinson & Kamalini Ramdas & Jonathan W. Williams, 2016. "Robust Scheduling Practices in the U.S. Airline Industry: Costs, Returns, and Inefficiencies," Management Science, INFORMS, vol. 62(11), pages 3372-3391, November.
    2. Luttmann, Alexander & Ladd, Daniel, 2023. "Loyalty rewards and redemption behavior: Stylized facts for the U.S. airline industry," MPRA Paper 119214, University Library of Munich, Germany.
    3. Wagner, Konstantin, 2020. "Competition, cost structure, and labour leverage: Evidence from the U.S. airline industry," IWH Discussion Papers 21/2020, Halle Institute for Economic Research (IWH).
    4. Guo, Huanxiu & Jiang, Changmin & Wan, Yulai, 2018. "Can airfares tell? An alternative empirical strategy for airport congestion internalization," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 648-661.
    5. Tedi Skiti, 2017. "Entry Barriers and Technological Innovation in Broadband," Working Papers 17-11, NET Institute.
    6. Ivana Tománková, . "Determinants of Route Presence in the EU Airline Industry," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-13.
    7. Gerben de Jong & Christiaan Behrens & Hester van Herk & Erik Verhoef, 2019. "Domestic Market Power in the International Airline Industry," Transportation Science, INFORMS, vol. 53(3), pages 796-810, May.
    8. Li, Lu & Wan, Yulai & Yang, Dong, 2024. "Do shipping alliances affect freight rates? Evidence from global satellite ship data," Transportation Research Part A: Policy and Practice, Elsevier, vol. 181(C).
    9. Fukui, Hideki, 2019. "How do slot restrictions affect airfares? New evidence from the US airline industry," Economics of Transportation, Elsevier, vol. 17(C), pages 51-71.
    10. Ivana Tománková, 2017. "Determinants of Route Presence in the EU Airline Industry," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(1), pages 90-102.
    11. Gaurab Aryal & Charles Murry & Jonathan W. Williams, 2018. "Price Discrimination in International Airline Markets," Boston College Working Papers in Economics 968, Boston College Department of Economics.
    12. Patrick Dennis & Kristopher Gerardi & Carola Schenone, 2019. "Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry," FRB Atlanta Working Paper 2019-15, Federal Reserve Bank of Atlanta.
    13. Valdes, Victor & Gillen, David, 2018. "The consumer welfare effects of slot concentration and reallocation: A study of Mexico City International Airport," Transportation Research Part A: Policy and Practice, Elsevier, vol. 114(PA), pages 256-269.
    14. Federico Crippa, 2024. "Manipulation Test for Multidimensional RDD," Papers 2402.10836, arXiv.org, revised Jun 2024.

    More about this item

    Keywords

    Regression Discontinuity; Treatment Effect; Airline Industry; Barriers to Entry; Hub Premium; Airport Facilities;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • 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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