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A Panel Data Analysis of Code Sharing, Antitrust Immunity and Open Skies Treaties in International Aviation Markets

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Document pages: 44 pages

Abstract: This paper estimates the effects of code sharing, antitrust immunity and Open Skies treaties on prices, output and capacity using an eleven-year panel of U.S.-Europe data. Code sharing and immunized alliances are found to have significantly lower prices than traditional interline (multi-carrier) service, but the effects are smaller in magnitude than previous results that rely on cross sectional data. Statistical tests that prices for immunized alliance service are equal to online (single carrier) service often cannot be rejected, providing additional evidence that immunity grants allow immunized carriers to internalize a double marginalization problem. Estimated output effects, consistent with the price effects, show that alliances are associated with large increases in passenger volumes. Lastly, the relationship between immunity grants and Open Skies treaties is explored. Estimates suggest that capacity expansions associated with Open Skies are due entirely to expansion by immunized carriers on routes between their hubs. The results are robust to attempts to control for potential bias from changes in the mix of business and leisure passengers.

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