Does multimarket contact facilitate tacit collusion? inference on conduct parameters in the airline industry. Munich Personal RePEc Archive No. 39515

We nest conjectural parameters into a standard oligopoly model. The conjectural parameters are modeled as functions of multimarket contact. Using data from the US airline industry, we \u85nd: i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that rms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs