DP12730-2 | Public Communication and Collusion in the Airline Industry

Publication Date

02/08/2019

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Abstract

We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in off ering fewer seats on competitive routes. Using text analytics, we build a novel dataset on communication among airlines about their capacity choices. Our estimates show that when all legacy airlines in a market discuss the concept of "capacity discipline," they reduce o ffered seats by between 1.14% to 1.48%. We verify that this reduction materializes when airlines communicate concurrently, and that it cannot be explained by the possibility that airlines are simply following through with their announcements. Additional evidence from conditional-exogeneity tests and control function estimates confi rms our interpretation.