(16) Analysis of Airline's Market Power and Cost Asymmetry

摘要

Firm's market power is observed as the markup that is the difference between the price and marginal cost. In this paper, we examine the variables that affect airlines' market power by adapting data obtained in U.S. domestic air passenger industry. At first step, we calculate firms' markups on equilibrium in each market by modeling firms' profit maximization and estimating demand parameters. Secondary, we regress the calculated markups above on some (expected) explanatory variables, with including the interactional term between Herfindahl-Hirschman Index in the markets and the standard deviation of predicted marginal costs of carriers in the markets. We find that market concentration has positive correlation with firms' markups in the market, however these depend on the variation of firms' cost-side characteristics.