Market structure and quality determination for complementary products: Alliances and service quality in the airline industry

This paper explores the effect of market structure on quality determination for complementary products. The focus is on the airline industry and the effect of airline alliances on flight frequency, an important element of service quality. With zero layover cost, the choice of flight frequencies has the same double-marginalization structure as in the usual alliance model, leading to a higher frequency in the alliance case as double marginalization is eliminated, along with a lower full trip price and higher traffic. The surprising result of the paper emerges with high-cost layover time, where double marginalization in frequencies is absent and where an alliance reduces service quality via a lower frequency, with the full price potentially rising (in which case traffic falls).     

Evidence of directional price discrimination in the U.S. airline industry

This paper explores possible determinants that may affect an airline’s decision to charge passengers different roundtrip fares depending on trip origin, a case of directional price discrimination. Such fare differences cannot be the result of differences in cost, as the cost of flying a roundtrip passenger does not significantly differ depending on direction. It is argued that directional fare differences result from airlines recognizing that passenger price elasticities differ between route endpoints. A price discriminating airline will then charge a higher roundtrip fare at the endpoint where the passenger price elasticity of demand is comparatively lower. Evidence is found suggesting that airlines do use differences in income to price discriminate when setting roundtrip fares. Fares are found to be $0.18-$0.43 higher on average for each $1000 difference in average per capita income between origin and destination metro areas. This finding is sensible assuming that higher incomes reduce the price elasticity of demand for air travel, with richer passengers being less sensitive to the cost of travel.     

Identifying airline price discrimination and the effect of competition

Empirical studies exploring the relationship between competition and price discrimination don’t generally consider the role of product differentiation or the asymmetric adoption of discrimination across firms. Using a customized empirical approach to examine the use of Saturday-night stayover discounts in the U.S. airline industry, I show that discounts are used more often when facing competitors that offer differentiated products but less often when competing with firms that don’t use discounts. Legacy carriers rarely use discounts when competing with Southwest or other low-cost carriers, but the presence of competing legacy carriers sometimes enhances the use of discounts.     

Price wars and price collusion in China's airline markets

In the absence of an effective antitrust law, both fare wars and price collusion have been pervasive in China's airline markets, causing concern for both airlines and consumers. A study of monthly airfare data from 2002 to 2004 confirms that fare wars occur periodically, as well as price collusion. Both tend to be short-lived. The fact that collusion is more likely to occur in January and April when demand is high, as revealed by China Eastern's and China Southern's price-war and collusion models, has been confirmed by interview information obtained from the airlines' sales managers. However, there is also evidence in these models suggesting that collusion can be more easily formed when demand is low. High airport concentration measured by the HHI may facilitate collusion in certain circumstances, but it may also lead to more price wars under other conditions. Concentration in both airports and routes does not appear to systematically affect the occurrence of fare wars and collusion in all the models estimated. We also reject the possibility that mutual forbearance due to multimarket contact plays any important anti-competitive role in China's airline markets.     

Collusive pricing patterns in the US airline industry

We formulate two empirical tests for collusive behavior based on the theoretical insights of Werden and Froeb (1994) and Athey, Bagwell, and Sanchirico (2004). The first predicts that colluding firms will reduce pair-wise differences in prices within a market if demand satisfies certain properties. The second predicts that colluding firms will sacrifice efficiency in production by increasing price rigidity to avoid informational costs. Using panel data from the US airline industry and fixed-effects estimation, we find that greater multimarket contact between carriers leads to pricing patterns consistent with both theoretical predictions, while code-share agreements are consistent with the second prediction.     

Mergers and product quality: Evidence from the airline industry

Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers. Consistent with the theory that mergers facilitate coordination but diminish competitive pressure for quality improvement, we find that each merger is associated with a quality decrease (increase) in markets where the merging firms had (had no) pre-merger competition with each other, and the quality change can have a U-shaped relationship with pre-merger competition intensity. Consumer gains/losses associated with quality changes, which we monetize, are substantial.     

Dynamic oligopoly pricing: Evidence from the airline industry

We explore how pricing dynamics in the European airline industry vary with the competitive environment and with customer heterogeneity. We document three main findings. First, the rate at which prices increase towards the scheduled departure date is significantly reduced in more competitive markets. Second, the sensitivity of the intertemporal slope to competition increases in the heterogeneity of the customer base. Third, ex-ante predictable advance purchase discounts account for 83 percent of within-flight dispersion in prices and for 17 percent of cross-market variation in pricing dynamics.     

Hybrid cooperation agreements in networks: The case of the airline industry

This paper develops a unified framework to analyze a continuum of hybrid cooperation agreements along two dimensions: their degree of revenue sharing (scope of alliances) and their degree of cost sharing (scope of joint ventures). The analysis focuses on the air transportation industry, distinguishing between interline and interhub markets. As economies of traffic density become stronger, we find that the socially optimal cooperation agreement moves from full alliance to joint venture in interline markets, whereas it moves from joint ventureto merger in interhub markets. These results are driven by the tradeoff between a procompetitive effect of alliances in interline markets and an anticompetitive effect in interhub markets, along with the efficiency gains associated with joint ventures in interhub markets. We also develop an empirical application for intercontinental routes for the period 2010–2016 that identifies a positive impact of deeper degrees of airline cooperation (revenue and cost sharing) on traffic, both in interline and interhub markets. Therefore, the potential anticompetitive effect of deeper alliances in interhub markets is not observed in our sample.     

Stock market efficiency and random character of share price behaviour in India

This study is aimed at testing the appropriateness of the random walk model in the Indian Stock Market for a recent period 1979–87. Using data of prices for five shares indices from the Bombay Stock Exchange during this period, both the tests - serial correlation and runs analysis, have generally supported the independence assumption of the random walk model.     

Innovation,R&D productivity,and global market share in the pharmaceutical industry

In this paper, we estimate two empirical models using a pooled, cross-section sample of international pharmaceutical firms for the period 1987 to 1989. The first model tests the relationship between R&D productivity and a vector of firm-specific characteristics. The second model tests the determinants of global market share. The empirical analysis reveals three findings. First, we find evidence that there are diminishing returns in the pharmaceutical R&D process. Second, we find that firm size has a positive effect on average R&D productivity and a positive impact on the marginal R&D productivity for plausible R&D staff sizes. And third, we find evidence that R&D productivity and the number of sales employees have a positive effect on the firm's global market share.The views presented in this paper reflect those of the authors and do not necessarily reflect the views of the U.S. International Trade Commission or any of its individual commissioners. We thank William Comanor, Daniel Gropper, Daniel Hamermesh, Susan Pozo, Paul Thistle, and Mark Wheeler for their comments and suggestions on an earlier draft of this paper. We assume all responsibility for any errors contained herein.     

Market share and warranty costs for renewable warranty programs

A majority of consumer products is associated with some type of warranty. The nature and extent of the warranty affect the sales, market share, costs and profits of many businesses. A warranty can be defined as an assurance from a seller to a buyer that the product sold is guaranteed to perform satisfactorily up to certain length of time, which is the warranty period. In case of product failure within the warranty period, it is assumed that the seller will conform to a rebate policy. In this paper the rebate policy is selected to be linear pro-rata or lump sum. The paper investigates warranty programs that offer customers the option to renew warranty, after an initial period, for a certain premium. The effect of such programs on market share and warranty costs is explored.     

Market structure and product quality: A study of the 2002 Japanese airline merger

This study examines the economic consequences of a horizontal merger between Japanese airlines that took place in 2002, with particular emphasis on quality responses to the airline merger. A structural model allows firms to determine not only prices but also flight frequencies. The obtained estimates would reject the hypothesis that the merger facilitated coordinated effects. Efficiency gains from the merger are estimated as not trivial, and are more strongly observed in marginal costs per flight, rather than in marginal costs per passenger. Welfare effects of the merger are positive, but vary by market structure. Neglecting endogenous flight frequency overstates the welfare gains, especially for smaller markets. Finally, remedial measures imposed by the authority did little for the merger outcomes.     

餐饮业的现时脱手价格会计浅谈

餐饮是人类自己创造的,而又造就了人类自己的第一重要活动。餐饮业是在餐饮社会需求的基础上发展而来的,在社会经济文化发展中具有重要的作用。餐饮业的生产销售特点决定了餐饮业适于采用现时脱手价格会计。但是,现时脱手价格会计有优点也有不足。     

Market structure and the impact of imports on price cost margins

This paper provides a conceptual analysis of the impact of imports on domestic price-cost margins via the interaction of economies of scale, conjectural variations, and demand elasticities. Positive or negative impacts can be theoretically justified based on the relative strength of these factors.     

Evaluating traditional share—Price and residual demand measures of market power in the catsup industry

In this paper we specify a price determination model which can test both the traditional positive interbrand price—share hypothesis and the negative intrabrand relationship predicted by residual demand analysis. We evaluate this relationship empirically using three-dimensional panel data from the catsup industry. We find support for both hypothesized relationships, and conclude that market power exists in this industry. Further, we conclude that the results depend critically on the characteristics of the data set to be analyzed.     

Asymmetric performance: the market share impact of scale and link alliances in the global auto industry

This study investigates how participating in strategic alliances with rivals affects the relative competitive positions of the partner firms. The paper builds on studies that show significant differences in the outcomes of scale and link alliances. The study argues that the more asymmetric outcomes of link alliances translate into greater changes in the relative market shares of the partner firms, due to unbalanced opportunities for inter‐partner learning and learning by doing. We find support for this argument by examining 135 alliances among competing firms in the global automobile industry, from 1966 to 1995. Copyright © 2004 John Wiley & Sons, Ltd.     

Market integration and price transmission in consumer markets of developing countries

World prices for agricultural commodities surged in 2006–08, and then again in 2011–12. In many developing countries, consumer prices for staple foods, such as bread and rice, mirrored these movements. This paper examines whether prices in urban consumer markets within developing countries are co-integrated with prices in world agricultural commodity markets. Using a single equation error correction model, we examine the response of consumer prices for wheat, rice, maize, and sorghum to changes in world market prices and exchange rates in urban centers of the developing world. Analyzing over 60 country/commodity pairings, we find that developing countries’ consumer markets are co-integrated with world markets. Yet, we also find that the transmission of changes in both world prices and real exchange rates to domestic consumer prices is not high, and that the movement of domestic consumer prices to new equilibrium with world prices after a shock to the latter is relatively slow.     

Market share inequality,the HHI,and other measures of the firm-composition of a market

Data for individual markets suggest that the Herfindahl- Hirschman Index does not fully account for the inequality of market shares and the number of firms in a market. An empirical investigation is conducted to determine whether share inequality, number of firms, and major firm presence affect market profit rates independent of the HHI. The analysis controls for efficiency, among other things. Test results based on 1,684 banking markets during 1990–1992 indicate that the HHI, market share inequality, and the importance of major firms are positively related and the number of firms is negatively related to profit rates. Results on several other variables also suggest that market imperfections exist in local banking markets.     

Price asymmetries and the path dependence of market power: Evidence from the U.S. airline industry

This paper uncovers price asymmetries across oligopolistic and monopolistic markets that are seemingly identical in structure but different in competitive history. This is done by identifying “quiet life” markets that have not (yet) experienced a change in structure, and “non-quiet life” markets that have been disrupted by firm entry and/or exit. Using a long panel dataset from the U.S. airline industry, we find that quiet life duopolies price significantly higher than duopolies that come about by entry in monopoly, and that quiet life monopolies price significantly lower than monopolies that come about by exit in duopoly. We show that the path towards a particular market structure matters for the determination of prices and explore several mechanisms that likely explain the price asymmetries, including engagement in anticompetitive behaviour, adjustment behaviour to market structure changes, and the cost heterogeneity of competing firms.