Market Conduct in the Airline Industry: An Empirical Investigation

Abstract

This article calculates conduct parameters (or "conjectural variations") for a set of duopoly airline routes. We estimate the mean conduct parameter for each airline and draw inferences about whether Bertrand, Cournot, or cartel models are supported by the data. Some sensitivity analysis with respect to underlying parameters is also carried out. In general, we find that the Cournot model seems much more consistent with the data than either the Bertrand or cartel model.