Multimarket contact and pricing strategy in the United States domestic airline sector

In this thesis, we analyze the effect of multimarket contact on prices in the U.S. domestic airline sector. A recent theoretical work by Bernheim and Whinston (1990) suggests that firms that meet in different markets (product or geographical area) may be able to sustain collusion in markets that would be competitive in a single market setting. They show that firms may be able to transfer market power from non-competitive markets to competitive markets. Multimarket contact may also allow firms to develop a "live and let live policy" where each firm respects the competitor' s territory for fear of retaliation in its own turf.; We try in this work to test if these strategies--transfer of market power and mutual threat strategy--are a source of market power in the airline industry. Many factors make this sector a good candidate to study. Airlines meet in many markets. They sell a relatively homogeneous product and a sophisticated computer network allows each firm to monitor its competitors for any deviation.; We estimate a price equation model on data provided by the Department of Transportation. We have five quarters of data for five years (the second quarter of each year). The data has a panel structure (time, market and firm level) that allows us to introduce three fixed effects to control for unobservables at these three levels.; We find that multimarket contact could be an important source of market power in this sector. The results support the idea that airlines transfer market power across markets and have developed mutual threat strategies. Multimarket contact appears to play a role mainly in markets whose internal structure is competitive.