economies of traffic density in the deregulated airline industry this article estimates a structural model of competition among hub and spoke airlines in order to measure the strength of economies of traffic density on individual route segments we find that economies of density were strong during the sample period fourth quarter 1985 stronger than previous estimates by douglas caves laurits christensen and michael tretheway derived from traditional cost function methods we also find that the airlines competitive behavior was far from collusive in the markets under study markets requiring a connection at a hub airport our structural model also provides plausible estimates of demand elasticities we use our estimates to provide a cost based rationale for the major changes in the structure of the industry following deregulation for example the increase in airport and industry wide concentration and the increase in competition at the city pair market level and to simulate the effects of a merger of airlines that share a hub

entry exit and performance in airline markets abstract data from the airline industry indicate that 1 entry generally is not induced by price levels substantially above the norm 2 entry reduces fares and increases output and exit increases fares and reduces output and 3 incumbents cut price and maintain output in response to entry and survivors increase both price and output in response to exit these findings cast doubt on the ability of entry to prevent or reverse price increases from anticompetitive mergers

sufficiency or efficiency to achieve lower resource consumption and emissions the role of the rebound effect a frequent criticism of eco efficiency strategies is that an increase in efficiency can be offset by the rebound effect sufficiency is discussed as a new strategy involving self imposed restriction of consumption but can also be subject to the rebound effect we show that the range of possible secondary effects of efficiency and sufficiency strategies goes beyond the rebound effect the rebound effect can indeed also be linked to eco sufficiency strategies but there are further secondary effects of both eco efficiency and eco sufficiency strategies such as double dividend effects we develop an eco efficiency sufficiency matrix to logically order eco efficiency and sufficiency measures to attain lower resource consumption and emissions

price discrimination in the airline market the effect of market concentration we test the hypothesis that price discrimination increases with competition in the airline market using a large cross section of tickets offered by several carriers on various routes we approximate price discrimination with marginal implicit prices of ticket restrictions that carriers typically use to price discriminate saturday night stayover re quirements and advanced purchase discounts we find that the restrictions are associated with lower airfares but that the discounts are smaller on routes with higher market concentration the results suggest that price dispersion attributed to ticket restrictions increases as markets becomemore competitive

localized market power in the u s airline industry this paper tests whether the observed dominance of most city pair markets and airports in the u s domestic airline industry by single carriers confers any pricing power on the dominan t firms the results of fixed effects estimation indicate that airport dominance by a carrier does confer upon it substantial pricing power whereas dominance at the route level seems to confer no such pricing power additionally the authors find a positive yet small correlation between both route concentration and price and airport concentration and price the quantitative importance of airport dominance reveals that the most promising direction for public polic y aimed at improving the industry s performance is to ensure equal acc ess to sunk airport facilities copyright 1993 by mit press

the political economy of ec regionalism abstract many observers have noted a recent proliferation of regional trade agreements primarily centred in or on europe the paper analyses the causes and consequences of ec regionalism it begins by examining the development and importance of the phenomenon it finds that although the ec maintains preferential trade arrangements with virtually all countries preferential trade accounts for no more than 25 of total ec trade the paper investigates the causes of ec regionalism focusing on the determinants of both the demand by third countries and the supply by the ec lastly it examines future options

spatial multiproduct pricing empirical evidence on intra european duopoly airline markets this paper estimates a model of spatial multiproduct duopoly pricing when the location patterns differ across markets the theoretical model suggests that the neighbouring configuration yields less competitive nash prices than the interlaced configuration i apply this model to data for intra european duopoly airline markets the empirical results support the theoretical model since i find that fares are higher on intra european markets that exhibit neighbouring configurations in the time domain this result suggests that price competition is reduced when each airline operates on a specific segment of the timetable e g the first 12 hours of the day clearly this result has several implications for policy makers and or airport authorities in charge of awarding slots

the evolution of u s airline competition studies by academic economists were a significant force in the movement towards deregulation of the domestic airline industry in the early 1970s levine 1965 jordan 1970 keeler 1972 douglas and miller 1974 during the critical 1977 78 period in which deregulation was imposed first de facto by the civil aeronautics board cab and then de jure by congress the chairman and vice chairman of the cab were economists for the 14 years since deregulation economists have continued intensive study of the industry in part because of the unusual availability of reliable firm and transaction level data and in part because of the rare opportunity to observe an industry as it evolves from strict economic regulation to fairly unimpeded competition and strategic behavior the simplest prediction of economists about airline deregulation and one of the few on which nearly all economists agreed was that deregulation would improve consumer welfare in comparison to continued price and entry regulation fourteen years later nearly all economists still agree on this though the degree of enthusiasm for the deregulation outcome varies considerably there was substantial disagreement among economists about the market structure that would result because studies of scale economies in the airline industry had concluded that none existed beyond the scale of the smaller major airlines of the 1970s caves 1962 eads et al 1969 many economists argued that deregulation would result in more than the 11 major airlines that existed at the time of deregulation others predicted that only a few or possibly only one airline would survive at a large scale two noted university of chicago economists sam peltzman and lester telser made a bet in 1979 on whether

u s airline deregulation its effects on passengers capital and labor his paper presents an analysis of the effects of airline deregulation on passengers business and personal first class and coach and explores how capital and labor have fared in a free market the evidence corroborates many benefits that proponents of deregulation predicted but it has not worked perfectly prices are not fully competitive and for certain dimensions service quality is down furthermore the contestability hypothesis as applied to the airline industry does not withstand statistical examination

the price effect of eliminating potential competition evidence from an airline merger this paper analyzes the gain in pricing power that a firm achieves by merging with a potential competitor in its market using pricing data for the merger of usair and piedmont empirical analysis finds that prices rose by 5 0 to 6 0 per cent on routes that one carrier served and the other was a potential entrant this was more than half the increase on routes where the two carriers had been direct competitors other important factors included carrier size market concentration incumbent s identity and the potential entrant s presence at one or both endpoints

concentration potential entry and performance in the airline industry airline markets do not satisfy the theoretical conditions for perfect contestability and theory does not indicate which deviations from perfect contestibilty significantly affect performance thus the effect of potential entry on performance in airline markets is explored empirically the best model for explaining fares is found to be one in which the measure of market concentration takes into account not only the number and size distribution of incumbents but also the number of potential entrants not significantly disadvantaged due to economies of scale and scope the hypothesis that all city pair markets are perfectly contestable is rejected coauthors are richard l johnson andrew s joskow gregory j werden and michael a williams copyright 1989 by blackwell publishing ltd

potential competition and possible collusion in forest service timber auctions i introduction potential entrants to an imperfectly competitive market in theory limit the ability of existing firms to charge high prices this claim has rarely been tested due mainly to the problems of identifying potential entrants and determining whether established firms perceive them as future competition in previous work neal 1987 finds option bid ask spreads lower when they are eligible for multiple listing kuhlman and johnson 1983 find winning highway construction bids insignificantly related to the number of firms buying plans for the particular project and hurdle et al 1989 show that performance in the airline industry is affected by the number of potential entrants not deterred by economies of scale or scope this paper determines whether potential competition influenced winning bids in forest service oral and sealed bid timber auctions held during 1977 prior to 1977 oral bidding was the dominant method of selling timber in the pacific northwest the national forest management act of 1976 required that sealed bidding be used on all sales with exceptions made only by the secretary of agriculture the sealed bidding requirement was overturned in 1978 after firms in communities dependent upon forest service timber complained that sealed bidding resulted in greater uncertainty in obtaining steady timber supplies 1 firms pay the government for the rights to harvest timber in forest service timber auctions and the highest bid wins bidding theory predicts that greater competition should result in higher winning bids 2 the relevant measure of competition in an oral auction is the actual number of competitive bidders participants in a sealed bid auction however should base their bids on the potential number of competitors timber is costly to haul and timber transportation distances from the sale site to the closest mill of potential competitors are used to define two measures of potential competition the first measure is a simple count of the number of firms whose closest mill lies within the geographical market for forest service timber auctions and is termed potential competition the second results from a probit analysis relating auction participation to hauling distance and is called expected competition the results show that these measures are as expected considerably more important in explaining winning sealed bids however actual competition explains winning bids better than either potential or expected competition under both oral and sealed bidding in addition contrary to expectations increases in hauling distances result in higher winning bids when sealed bidding is used collusion in sealed bid auctions and preclusive bidding a type of collusion in oral auctions are explanations for both of these results the possibility of collusion in sealed bid auctions is supported by an index based on stigler s 1964 theory of oligopoly and feinstein block and nold s 1985 research on bid rigging in highway construction auctions representing the likelihood that a given auction was rigged mead 1966 was among the first to discuss the possibility of preclusive bidding in oral auctions preclusive bidding occurs when firms close to a sale site bid above levels which are profitable to firms farther from the site given that oral bidding entails greater participation costs participants must be present preclusive bidding or the threat of preclusive bidding deters outsider firms from bidding in future oral auctions firms close to the site benefit from the decreased competition and may win at a lower price oral and sealed bid comparisons of winning bid variances overbids and numbers of bidders support the explanation of preclusive bidding in oral auctions public policy should be concerned with obtaining the highest possible value for public timber and ensuring that it is awarded efficiently to the firm having the highest timber value

dynamic oligopoly behaviour in the airline industry abstract this paper examines the dynamic interaction between united airlines and american airlines on a set of duopoly routes we estimate quarterly conduct parameters or conjectural variations and test constant behaviour bertrand cournot and collusive models we also test two regimeswitching models derived from the green porter price war model one based on reversion to bertrand behaviour during price wars the other on reversion to cournot behaviour the three constant behaviour models are all rejected the regime switching models can both describe the data but the cournot based version is preferred

tourism and economic development a survey this article surveys the literature on tourism and economic development identifying the contribution that tourism can make to development including foreign currency income and employment and the costs that it entails single equation and system of equations models for estimating tourism demand are provided indicating developing countries potential to benefit from increasing expenditure on tourism but their susceptibility to deterioration in price competitiveness the main sectors of tourism supply transportation tour operators travel agents and accommodation are examined and the importance of cross country integration between firms is highlighted the article argues that many of the problems associated with the use of environmental resources for tourism stem from market failure and it considers methods for increasing sustainably the returns from them

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

the relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry this paper estimates the effects of actual and potential rivalry on profitability of firms in the u s pharmaceutical industry during the 20 year period 1963 82 the results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability the results also show that potential competition significantly reduced drug firms profitability during the entire 20 year period copyright 1999 john wiley sons ltd

how do incumbents respond to the threat of entry evidence from the major airlines this paper examines how incumbents respond to the threat of entry of competitors as distinguished from their response to competitors actual entry it uses a case study from the passenger airline industry specifically the evolution of southwest airlines route network to identify particular routes where the probability of future entry rises abruptly when southwest begins operating in airports on both sides of a route but not the route itself this dramatically raises the chance they will start flying that route in the near future we examine the pricing of the incumbents on threatened routes in the period surrounding such events we find that incumbents cut fares significantly when threatened by southwest s entry into their routes this is true even after controlling in several ways for airport specific operating costs the response of incumbents seems to be limited only to the threatened route itself and not to routes out of nearby competitor airports where southwest does not operate e g fares drop on routes from chicago midway but not chicago o hare the largest responses appear to be restricted to routes that were concentrated beforehand incumbents do experience short run increases in their passenger loads concurrent with these fare cuts this is consistent with theories implying incumbents will try to generate some longer term loyalty among current customers before the entry of a new competitor we examine evidence relating this demand building motive to frequent flyer programs and find suggestive evidence in favor of this notion there is only weak evidence that incumbents increase capacity on the routes

contagion and trade why are currency crises regional abstract currency crises tend to be regional they affect countries in geographic proximity this suggests that patterns of international trade are important in understanding how currency crises spread above and beyond any macroeconomic phenomena we provide empirical support for this hypothesis using data for five different currency crises in 1971 1973 1992 1994 and 1997 we show that currency crises affect clusters of countries tied together by international trade by way of contrast macroeconomic and financial influences are not closely associated with the cross country incidence of speculative attacks

explaining and predicting airline yields with non parametric regression trees abstract recently developed non parametric regression trees are found both to explain more of the variation and to better predict airline yields on city pairs than linear regressions

pricing and performance in monopoly airline markets since the airline deregulation act of 1978 ada much has been learned about the performance characteristics of airline markets functioning free of governmental control contrary to the initial expectations of many airline markets do not appear to conform well to the contestable markets model numerous empirical studies of the industry have concluded that performance depends on the level of actual competition a result incompatible with perfect contestability 2 in a perfectly contestable

the competitive impact of air crashes stock market evidence abstract we examine stock market reactions to commercial air crashes to test the hypothesis that consumers respond by switching to rival airlines and or flying less we focus on the stock price reactions of airlines not involved in the crash if switching occurs noncrash airlines should benefit to the extent that they are direct competitors of the crash airline we develop a measure of market overlap and regress individual non crash airline abnormal returns on this measure allowing the constant term to capture any negative spillovers the evidence supports both a switching effect and a spillover

price price dispersion and number of sellers at a low entry cost shopbot abstract shopbots function as market intermediaries by providing unprecedented quantities of information to buyers and sellers this paper explores the role of market structure across shopbot mediated markets using an unbalanced panel of 399 digital camera models it extends prior work by using an ultra low entry cost site additionally allowing controls for life cycle and popularity effects we find a robust negative relationship between seller number and price which persists even as markets become crowded with sellers the results are capable of either an scp or a carlson mcafee heterogeneous cost interpretation but observed entry behaviour here is consistent with the latter

capacity and product market competition measuring market power in a puppy dog industry abstract in this paper we specify and estimate a structural model which accounts for competition in two variables capacity and prices the model has a two stage setup in the first stage firms make capacity decisions followed by a product differentiated price setting game in the second stage since costs are endogenized through the first stage this has important implications for the measurement of market power in the product market in particular simpler one stage specifications would result in a bias in the measurement of market power which can be linked to the taxonomy for two stage games given in fudenberg and tirole 1984 fudenberg d tirole j 1984 the fat cat effect the puppy dog ploy and the lean and hungry look american economic review paper and proceedings 74 361 366 we then estimate this model demand cost short and long run and conduct for the european airline industry using data for the period of 1976 1990 we perform a number of specification tests and reject a simple one stage specification in favor of our two stage set up in particular we find that some degree of market power in the product market exists however market conduct in the two stage set up is significantly less collusive than in the more widely employed one stage specification which is consistent with the direction of bias in puppy dog games this illustrates that collusiveness of firms market conduct in the product market is significantly overestimated whenever capacity competition is not accounted for

endogenous costs and price cost margins an application to the european airline industry this paper allows for endogenous costs in the estimation of price cost margins in particular we estimate price cost margins when firms bargain over wages we extent the standard two equation set up demand and first order condition in the product market to include a third equation which is derived from bargaining over wages in this way price cost margins are determined by wages and vice versa we implement the model using data for eight european airlines from 1976 1994 and show that the treatment of endogenous costs has important implications for the measurement of price cost margins and the assessment of market power our main result is that observed prices in europe are virtually identical to monopoly prices even though observed margins are consistent with nash behavior apparently costs had been inflated to the point that the european consumers were faced with a de facto monopoly prices

the pure effects of european integration on intra eu core and periphery trade this paper analyses the effects of eu integration on intra eu trade volumes with a special focus on the evolution of trade within and between the core and the periphery countries in the early phases of eu integration there have been sizable trade creation and diversion effects with respect to efta countries both the creation and the diversion effects of eu membership have declined as the eu and efta have integrated in all phases of eu integration both core periphery and intraperiphery growth of trade have experienced stronger positive effects than intracore trade hence the eu enlargements did not cause any kind of intra eu peripherality

the impact of exchange rates and developing country debt on commodity prices a major feature of the international economy over the past decade has been the swings in the value of the us dollar the dollar fell to a historically low level in the late i970s but rose sharply over the period i982 4 by the beginning of i985 the dollar was generally considered to be over valued by between 2o and 40 since i985 there has been a depreciation of over one third these wide fluctuations in the value of the dollar have had implications for all major traded goods this paper focuses on the effects of changes in the value of the dollar on primary commodity prices and possible interactions between ldc indebtedness and these effects a rise fall in the value of the dollar must be expected to result in a fall rise in dollar commodity prices ridler and yandle i972 proposed a simple comparative static single commodity model to analyse the effects of exchange rate changes on the price of an individual primary commodity they showed that the commodity price change would be given by the change in an appropriately weighted exchange rate index write the price of commodityj as

measuring the impact of china s export growth on its asian neighbours the rise of china as an economic power has led to concern in many countries especially among asian countries that this development poses a serious threat to their own economic performance and in particular their ability to export the empirical support for this view remains inconsistent however with mixed evidence for the view that chinese exports has harmed or helped exports by other asian economies and which countries are more or less affected one explanation for these inconsistencies might include the various biases that follow from the use of a gravity model that is specified in an a theoretical manner in this paper we study the effect of the chinese exports growth on those by other asian countries using the empirical framework outlined by baldwin and taglioni 2006 the disadvantage of this approach is that we capture the relative effect rather than its direction that is when using the theoretically robust gravity model we are able to identify which countries are more or less harmed by chinese exports and not whether the effect is positive or negative to identify that we use instead trade on parts and components and final goods taken together we evidence of a positive relation between chinese and its asian neighbours exports with countries with greater endowments of human capital and capital labour ratio benefiting most from this growth