It seems that the first proposed fare increase of 2013 will fail. United Airlines instituted modest increases and Delta Airlines came on board. American Airlines was still deciding when Southwest Airlines indicated it would not. So, the fare hikes were rescinded.
What do we infer from this episode? On the face of it it, this looks like an attempt at a collusive price increase. Firms will not openly discuss fare increases for fear of violating antitrust laws. This sort of tentative fare hikes that become more established only if they are met by competitors is very like the form of 'tacit collusion' one might expect. But it is also the case that having systematically higher fares than your competitor, even by a few dollars, will decrease ticket sales dramatically. I would suspect that a firm level elasticity of -10 for this kind of decision would not be too high. In this case, one would also expect prices across firms to move together.
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