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Time Series Analysis of Strategic Pricing Behavior in the US Airline Industry

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Abstract

A positive relationship betweencompetitive pressure and technical efficiency has been demonstratedby several studies; other studies hold forth that airline marketsbehave strategically. We bring these two literatures togetherby presenting a time series methodology to examine strategicpricing behavior and discussing the implications for airlineefficiency. We find evidence of dynamic, route-level, parallel( i.e. strategic) pricing despite highly variable price structures.A stable price relationship is consistent with successful coordinationof dynamic oligopolists and may highlight those routes wheresignificant market power exists. In light of previous research,this indicates that the airlines on these routes may not be attainingmaximum technical efficiency. For policy makers, this methodologyis useful for analyzing other markets which behave strategically.

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Authors and Affiliations

  1. Department of Economics, Tulane University, 206 Tilton Hall, New Orleans, LA, 70118-5698

    Ila M. Semenick Alam

  2. Capital Markets Research, Frank Russell Company, 909 A Street, Tacoma, WA, 98402

    Leola B. Ross

  3. Department of Economics, Rice University, 6100 Main St., Houston, TX, 77005-1892

    Robin C. Sickles

Authors
  1. Ila M. Semenick Alam
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  2. Leola B. Ross
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  3. Robin C. Sickles
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Alam, I.M.S., Ross, L.B. & Sickles, R.C. Time Series Analysis of Strategic Pricing Behavior in the US Airline Industry. Journal of Productivity Analysis 16, 49–62 (2001). https://doi.org/10.1023/A:1011199102707

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