Philip G. Gayle

An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance

The U.S. Department of Transportation (DOT) expressed serious reservations before ultimately approving the Delta/Continental/Northwest code‐share alliance. The DOT’s main fear was that the alliance could facilitate collusion (explicit or tacit) on prices and/or service levels in the partners’ overlapping markets. However, since implementation of the alliance, there has not been a formal empirical analysis of its effects on price and traffic (number of passengers) levels. The main objective of this paper is to conduct such an analysis with a particular focus on testing whether the data are consistent with collusive behavior by the three airlines. The evidence does not suggest that the alliance facilitated collusion on the partners’ overlapping routes.

Airline Code‐Share Alliances and Their Competitive Effects

Code‐share alliances have become a prominent feature in the competitive landscape of the airline industry. However, policy makers are extremely hesitant to approve proposed code‐share alliances when the potential partners’ route networks have significant overlap. The main concern is that an alliance may facilitate price collusion on partners’ overlapping routes. This article shows how policy makers can use a structural econometric framework to quantify the competitive effects of proposed code‐share alliances, where potential alliance partners compete on overlapping routes in the prealliance industry. As an example, I apply the econometric model to the Delta/Continental/Northwest alliance. This proposed alliance was initially greeted with skepticism by the U.S. Department of Transportation owing to the potential partners’ unprecedented level of route network overlap. For the markets considered in my analyses, it appears as though the ultimate approval of the alliance by policy makers was justified.

Competition and investment in telecommunications

This study examines the relationship between competition and investment by Incumbert Local Exchange Carriers (ILECs) in US telecommunications markets. A panel data model and a dynamic panel data model that have not been used in previous studies are applied in this analysis. Results of the panel data model suggest that investment by ILECs is positively related to the market share of Competitive Local Exchange Carriers (CLECs), and negatively to the absolute number of CLECs. However, once the persistence in ILECs’ investment behaviour is controlled for using the dynamic model, our measures of the existing competition from CLECs, at best, have a weak effect on ILECs’ investment. Therefore, while strengthening competition in the telecom sector may be key to restoring telecom investment, it is uncertain that competition spurred by the mandatory sharing policy in this sector stimulates ILECs’ incentives to invest in new infrastructure.

Efficiency Trade-Offs in the Design of Competition Policy for the Telecommunications Industry

Trade-offs between imitation and innovation create natural tensions in the design of competition policy for the telecommunications industry. We explore the relationship between the prices of unbundled network elements (UNEs) and static/dynamic efficiency. We find that even when UNEs are priced to induce efficient make-or-buy decisions from a static perspective, mandatory unbundling reduces the incumbents incentive to invest from a dynamic perspective. Moreover, while the literature focuses on disincentives for investment in innovation associated with low UNE prices, we find that raising prices for UNEs, when such prices preserve the efficient make-or-buy decision, can discourage investment in process innovation.

The Continued Dumping and Subsidy Offset Act: An Economic Analysis

Under the Continued Dumping and Subsidy Offset Act (CDSOA) of 2000, the U.S. government distributes the revenue from anti-dumping and countervailing duties to domestic firms alleging harm. In this article, we develop a simple model to examine the economic effect of the CDSOA. For the case in which the “offset payments” to domestic firms are linked to the volume of foreign imports, the CDSOA may increase foreign imports when the domestic market is more competitive than in the Cournot equilibrium. This finding runs contrary to what the E.U. and some exporting countries have claimed. But if the market is less competitive than in Cournot, the CDSOA becomes an instrument of trade protectionism.

Has the Byrd Amendment Affected US Imports

The Continued Dumping and Subsidy Offset Act (CDSOA), also known as the Byrd Amendment, allows the US government to distribute revenues from antidumping duties to domestic firms alleging harm. Prior to the amendment these revenues were not distributed to firms. In this article, we formally test the hypothesis that the Byrd Amendment effectively provides double protection to US firms to the extent that it further restricts US imports, as argued by the EU and 11 other US trading partners. Using a rich panel of 362 US manufacturing industries for the period 1998 to 2003, we find that whether or not the Byrd Amendment restricted US imports depends crucially on the level of competitiveness in the import-competing industry. Specifically, we find that the Byrd Amendment served to restrict imports only in industries where competition is relatively weak, while the amendment is associated with an increase in imports in more competitive industries.

Choosing between Order‐Of‐Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and Mcdonald's Restaurant Outlets

We demonstrate how a non-nested statistical test developed by Vuong (1989) can be used to assess the suitability of alternate order-of-entry assumptions used for identification purposes in empirical entry models. As an example, we estimate an entry model of McDonald’s and Burger King restaurant outlets in United States. The data set focuses on relatively small “isolated” markets. For these markets, the non-nested tests suggest that order-of-entry assumptions that give Burger King outlets a first-mover advantage are statistically preferred. Last, a Monte Carlo experiment provides encouraging results suggesting that the Vuong-type test yields reliable results within the entry model framework.

Product Quality Effects of International Airline Alliances, Antitrust Immunity, and Domestic Mergers

Abstract Much of the literature on airline cooperation focuses on the price effects of cooperation. A key contribution of our paper is to empirically examine the product quality effects of airline cooperation. Two common types of cooperation among airlines involve international alliances and antitrust immunity (ATI), where ATI allows for more extensive cooperation. Additionally, this paper examines the extent to which domestic mergers affect the quality of international air travel products. The results suggest that increases in the membership of a carrier’s alliance or ATI partners and domestic mergers are associated with the carrier’s own products having more travel-convenient routing quality. Therefore, a complete welfare evaluation of airline cooperation and mergers should not ignore product quality effects.