EMPIRICAL APPLICATION OF CORE THEORY TO THE U.S. AIRLINE INDUSTRY

摘要

In this paper, a case is made based on core theory that under certain demand and cost conditions more competition can actually lead to harmful consequences for industries like the airline industry or cause an empty core problem. In this case some activities that are normally inefficient, such as forming cartels, can actually be beneficial in bringing about an efficient equilibrium. Though intriguing, and perhaps consistent with certain anecdotal evidence, this theory has not been empirically tested for the U.S airline industry. The literature recognizes that inefficient collusion may be distinguished from healthy cooperation in this manner: Agreements that occur in markets with major entry barriers are likely to be collusive while those that occur in more open markets are likely to promote efficiency. In this paper we will investigate alleged price-fixing episodes in airline history and identify whether they occurred primarily in protected markets (slot controlled airports or those with extreme congestion) or in open markets (airports more easily entered). If these behaviors occur more often in open markets then the implication is that airlines were likely struggling to overcome an empty core problem. This research therefore, would help policy makers in the design and formulation of economically sound antirust policy for the airline Industry.