Competition in Deregulated Airlines Markets.

• Position: Conferences

Competition in Deregulated Airlines Markets

The NBER held a conference on Competition in Deregulated Airlines Markets on May 12 in Cambridge. Research Associate Timothy F. Bresnahan, Stanford University, organized the following program:

Steven Berry, Yale University, "Estimation of a Model

of Entry in the Airline Industry"

Discussant: Robert Porter, Northwestern University

Michael Whinston, NBER and Harvard University,

"Entry, Contestability, and Deregulated Airlines

Markets: An Event Study Analysis"

Discussant: Ariel Pakes, NBER and Yale University

Gloria Hurdle, Richard Johnson, Andrew Joskow,

Gregory Werden, and Michael Williams, U.S.

Department of Justice, "Concentration, Potential

Entry, and Performance in the Airline Industry"

Discussant: Bronwyn H. Hall, NBER and University

of California at Berkeley

Severin Borenstein, University of Michigan, and

Nancy L. Rose, NBER and MIT, "Price Discrimination

in Airline Markets"

Discussant: Mark Roberts, Pennsylvania State

University

Berry considers the effect on an airline's profitability of its scale of operation in an airport. He treats the observed decisions of firms to enter airports as an indication of underlying profitability. Underlying firm profits are allowed to vary with the endogenously determined number of firms and with firm heterogeneity. Berry's results indicate that city-pair profits depend on the scale of airport operation and on the number of entering firms.

Whinston examines stock price reactions to announcements of entry into airport-pair markets by People Express airlines in 1984 and 1985. He shows that incumbents on entered routes suffer significant reductions in stock value on the announcement dates. Prices of other airline stocks do not fall on those days. This suggests that a significant degree of localization in competition prevents a general dissipation of the effects of entry. Also, there is some evidence of value losses associated with operations at the newly entered airport.

Hurdle and her coauthors study the effect of potential entry on performance in airline markets. They find that the best measure of market concentration takes into account not only the number and size...