Abstract
This paper examines the relationship between multimarket contact (MMC) and the intensity of competition. We take advantage of a recent merger, which altered the extent of MMC throughout the US airline industry, to understand the nature of MMC’s impact on the airlines’ frequency of service. Evidence that non-price effects of MMC are a part of the longer-term industry equilibrium is not robust. However, we observe that following the merger the market players started taking the degree of MMC into account in making their frequency decisions in line with the ‘mutual forbearance’ hypothesis; however, the effect showed signs of diminishing over time. Our results have implications for merger evaluation in industries where consolidation may lead to a higher extent of multimarket contact.
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Acknowledgments
The author thanks Jan Brueckner, Jeffrey T. Prince, Claudio Piga, Steven Puller, seminar participants at San Francisco State University, KU Leuven, and Otto Beisheim Business School (WHU); as well as conference participants in Boston, Mannheim, and Atlanta for comments on earlier drafts. Two anonymous referees and Editor White provided invaluable suggestions and guidance.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Bilotkach, V. Multimarket Contact and Intensity of Competition: Evidence from an Airline Merger. Rev Ind Organ 38, 95–115 (2011). https://doi.org/10.1007/s11151-010-9274-4
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DOI: https://doi.org/10.1007/s11151-010-9274-4