Market structure and competition: an empirical analysis of the U.S. airline industry

This thesis studies degree of competitiveness in the airline industry inferred by investigation of market structure. Chapter 2 documents empirical evidence that endogenous sunk costs investments in advertising and in expanding route network play a crucial role in determining equilibrium market structure and, that the industry is a natural oligopoly. In chapter 3 we perform an empirical analysis of market structure beyond the bounds approach, to explain firm numbers and market share asymmetry for city pair markets. In addition, splitting firms into two types, leaders and non-leaders, it is proposed evidence that nature of competition depends on presence of leader airlines. In particular, there is evidence consistent with learning; that is, non-leaders infer profitability of routes from the number and identity of leaders. Chapter 4 proposes two econometric models of entry to analyze market sharing agreements