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Brian ROBERSON (PURDUE University) “Estimating the Gains from Liberalizing Services Trade: The Case of Passenger Aviation”

May 13, 12:15 pm

Time: 12:15pm – 13:30 pm
Date: 13th of May 2019
Place: Room 3001

Brian ROBERSON (PURDUE University) “Estimating the Gains from Liberalizing Services Trade: The Case of Passenger Aviation”

Abstract : Over a 22-year period the US signed 106 bilateral “Open Skies Agreements” that significantly liberalized
international trade in passenger aviation services. We study how existing trade agreements distorted route
structures, carrier entry and capacity, and how liberalization affected consumer welfare. We develop a
novel two-stage game in which carriers first enter and decide on networks, then set capacity and a pricing
schedule prior to the realization of uncertain demand. The model allows for three empirically relevant
features of airline markets: carriers have unused capacity; prices vary across carriers due to quality; for
otherwise identical seats, prices rise as planes near capacity and are sold only to highest valuation
passengers. We further show that even complex network environments can be described in terms of
average pricing functions that map closely into empirical objects. We evaluate the model using difference-in-difference regressions applied to a 16-year panel of detailed
data on route structure, capacity, and ticket price, quantity, and quality. Liberalizing countries see
expansions in route offerings and reallocations of carrier capacity, consistent with mechanisms
highlighted in the model. Consumers enjoy lower prices, more direct flights, and large increases in
passenger quantities conditional on prices and on direct measures of quality. These effects are not uniform
across cities. Quality adjusted prices fall by 7 percent on routes that were the least constrained prior to
regulation, and by 15.3 percent on the most constrained routes.

Joint work : Anca D. Cristea, (University of Oregon) and David Hummels, (Purdue University & NBER).

Details

Date:
May 13
Time:
12:15 pm
Event Categories:
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Organizers

Edouard CHALLE
Julien PRAT