A number of empirical studies have shown that multimarket contacts facilitate collusive behaviorsbetween full-service carriers (FSCs) in the U.S. airline industry. This paper empirically investigates theeffects of multimarket contacts on air carriers’ pricing behaviors and highlights those of low-cost carriers(LCCs) and FSCs as well as those among LCCs. We estimated the simultaneous demand and price(pseudo-supply) equations to derive these impacts of multimarket contacts by using cross-sectional dataof the year 2006 (top 30 U.S. air markets with 4484 sample observations). We found that havingmultimarket contacts among FSCs leads to collusive setting of high airfares. However, the effect ofmultimarket contacts is lowered among LCCs, and the degree depends on the number of LCCs in amarket. We also found that LCCs’ airfares stay at low levels, even though they repeat multimarketcontacts among LCCs. These results suggest that LCCs’ behaviors are not affected by multimarketcontacts, and that these behaviors have strong impacts on lowering airfares.
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