Purpose: This paper investigates the nature of conduct that existed in the U.S. airline hub-to-hub\udmarkets prior to the recent merger wave of the legacy carriers. We explore the strategic importance of\udnetwork carrier hubs in form of “spheres of influence” on airline market conduct. We also\udsimultaneously recognize the overgrowing role played by Low Cost Carriers (LCC) over the years by\udestimating two conduct parameters - one in markets where LCCs directly compete head-to-head with\udlegacy carriers and the other for markets which LCCs do not serve but has presence in the hub airports\udor adjacent airports comprising the market endpoints. Thus our supply side framework also sheds some\udlight on the issue of perfect contestability in airline industry.\udDesign/methodology: We estimate a structural oligopoly model for differentiated products with\udcompetitive interactions using DB1B data for first quarter of 2004.\udFindings: Our results imply that the nature of competition is more aggressive relative to Bertrand\udbehavior in hub-to-hub markets and that these markets are less than perfectly contestable. \udOriginality/value: This paper adds to the empirical literature of airline competition by enabling\udestimation of the actual conduct parameter assuming firm price setting behavior in presence of product\uddifferentiation. Contrary to existing literature on airline competition, a structural model enables us to\udsystematically separate out effects of demand, cost and strategic factors on observed airline prices.
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