Estimation of a Model of Entry in the Airline Industry

Abstract

This paper considers the effect of an airline's scale of operation at an airport on the profitability of routes flown out of that airport. The empirical methodology uses the entry decisions of airlines as indicators of underlying profitability; the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city-pair profitability. These estimates imply that city-pair profits increase in airport presence and decrease rapidly in the number of entering firms. The literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms.