DYNAMIC OLIGOPOLY BEHAVIOR IN THE AIRLINE INDUSTRY

This paper examines the dynamic interaction between United Airlines and American Airlines on a set of duopoly routes. We estimate quarterly 'conduct parameters' (or 'conjectural variations') and test constant behaviour Bertrand, Cournot, and collusive models. We also test two regime-switching models derived from the Green-Porter price war model, one based on reversion to Bertrand behaviour during price wars, the other on reversion to Cournot behaviour. The three constant behaviour models are all rejected. The regime-switching models can both describe the data but the Cournot-based version is preferred.