Measuring Competition in the U.S. Airline Industry Using the Rosse-Panzar Test and Cross-Sectional Regression Analyses

We employ the Rosse-Panzar test to assess market performance in selected airport-pairs originating from Atlanta. The Rosse-Panzar test stands in the tradition of the New Empirical Industrial Organization. It is based on the comparative statics of a reduced form revenue equation. Therefore, it is less powerful than structural models, but it offers the advantage of less stringent data requirements and reduces the risk of model misspecifications. The test statistic allows us in most airport-pairs to reject both conducts consistent with the Bertrand outcome, which is equivalent to perfect competition, and the collusive outcome, which is equivalent to joint profit-maximization. Rather, the test statistic suggests that behavior is consistent with a range of intermediate outcomes between the two extremes, including, but not limited to the Cournot oligopoly. In the second part of the paper, a cross-section pricing regression complements the Rosse-Panzar test. It shows that the presence of low-cost competition in an airport-pair reduces the average fare significantly.airlines; oligopoly; conduct; price-cost marginas; Lerner index; Rosse-Panzar test

Capacity Constraints and Investment Decisions under Cournot Competition

This paper analyses how the equilibrium is affected when adding investment decisions and capacity constraints to the traditional Cournot duopoly model. Authors investigate a multiperiod setting with two firms taking investment decisions in every period. We prove that under these circumstances the Cournot equilibrium is unstable and the tendency is to a cartel structure in the industry. However, this behavior is not necessarily cooperative or subject to a tacit agreement. It is optimising for the duopolists to cut down the amount produced in spite of the behavior of the other firm until they reach the monopoly equilibrium

Market Structure in the US Electricity Industry: A Long-Term Perspective

Includes bibliographical references.We estimate changes in market structure in the US electric power industry during the last three decades using two independent approaches. First, we estimate an industry-wide conjectural-variations parameter. We find that industry concentration was generally rising during the 1970s, but has been gradually and consistently falling since the early 1980s. To check the robustness of these results, we then use a translog production function to estimate the Lerner Index. The results confirm that the industry was becoming less concentrated during the 1980s, though the Lerner Index tended to fluctuate during the late 1980s and early 1990s. Our results suggest that the current state of the electricity industry may have more to do with long-term changes in market structure than recent attempts to establish competitive wholesale electricity markets

The Administered-Price Hypothesis Revisited

The relationship between market structure and firms’ pricing behaviour has been a major and controversial issue in industrial economics. The question of how firms’ pricing behaviour differs across market structures is the focus of the administered-price thesis. In this paper the authors review theories providing rationales for the administered-price thesis and their empirical underpinnings, and methodological controversies concerning price series of differnt industries

Capacity Constraints and Investment Decisions under Cournot Competition

This paper analyses how the equilibrium is affected when adding investment decisions and capacity constraints to the traditional Cournot duopoly model. Authors investigate a multiperiod setting with two firms taking investment decisions in every period. We prove that under these circumstances the Cournot equilibrium is unstable and the tendency is to a cartel structure in the industry. However, this behavior is not necessarily cooperative or subject to a tacit agreement. It is optimising for the duopolists to cut down the amount produced in spite of the behavior of the other firm until they reach the monopoly equilibrium

Pricing Behaviour of the Monopolistic and Duopolistic Firms in the Long Run with Heterogeneous Products

Scholars have compared the pricing behaviour where a monopolist in the short run produces heterogeneous products 1 and 2, and a duopolist i produces goods i (i = 1, 2), where there are exogenous shocks to marginal cost and/or industry demand. This pricing behaviour is short run in that no entry is considered. However, this paper considers whether the existence of a potential entrant producing heterogeneous goods affects the pricing behaviour of the established monopolist under the same random shocks

The Economic Effects of Monopoly: A Lawyer\u27s Guide to Antitrust Economics

Four factors were influential in my decision to write this survey paper summarizing what economists believe theoretically and have found empirically to be the major economic (and noneconomic) effects of monopoly. First, in my work as an expert witness in antitrust cases representing both private parties and public bodies, I have found a glaring lacuna in the minds of some judges, a number of lawyers and most jurors in the area of antitrust economics. Second, this feeling has been fortified by my guest lectures in antitrust law courses; while the students are bright and the teacher dedicated, an acceptable level of competence in antitrust economics had successfully evaded its pursuers. Third, my reading of several law journals has convinced me that there are a large number of legally competent antitrust lawyers who are not very familiar with antitrust economics. Finally, I was motivated by the growing realization that people do not regard antitrust violations as very serious. The July 1974 issue of SCIENCE DIGEST reported a cross-section study of Baltimore residents in which the respondents were asked to rate the seriousness of crimes from 9 (most serious) to 1 (least serious). The highest mean score recorded was planned killing of a policeman (8.474), and the lowest mean score was being drunk in public places (2.849). Of the 140 crimes listed three were of an antitrust genus. Fixing prices of a consumer product like gasoline ranked 126 from the top (4.629), fixing prices of machines sold to businesses ranked 127 (4.619), and false advertising of a headache remedy ranked 132 (4.083). Offenses such as breaking a plate glass window in a shop, refusal to make essential repairs in rental property, shoplifting a carton of cigarettes from a supermarket, driving while license is suspended, lending money at illegal interest rates, joining a riot, and using pep pills are each regarded as more serious than the antitrust violations! In Part I we will explore in some detail the economic (and some noneconomic) effects of monopoly. In Part II we will examine briefly public policies toward monopoly