ON SOURCES OF MARKET POWER IN THE AIRLINE INDUSTRY: PANEL DATA EVIDENCE FROM THE US AIRPORTS

摘要

A firm can obtain market power through its dominant position on the product market, or via control of akey resource. In particular, it has been argued that airport dominance is a more important source ofmarket power in the US airline industry than route dominance. We examine this contention by analyzinga 17-year panel of airport-level prices in the United States. We demonstrate that even though on averageairport-level concentration appears to be the strongest source of market power, concentration on routesoriginating at an airport is the strongest predictor of price levels for the sub-set of large and medium hubairports. There is little evidence that either airport or route dominance significantly affect prices in thesub-sample of medium and small hub airports. There is also little evidence that an airport’s dominantcarrier exerts market power beyond the level predicted by the airport or route dominance. Our resultsimply that consumer welfare losses due to airline consolidation can be concentrated in smallercommunities, and related to changes in airport-level concentration. We provide a simple evaluation of thepossible effects of the Delta – Northwest merger in light of this finding, and suggest this consolidationevent can potentially lead to non-trivial consumer welfare losses to travelers in over 30 smallcommunities.