Analyzing the Effects of Temporary Antitrust Immunity: The Aloha-Hawaiian Immunity Agreement

Abstract

While several studies have examined the effects of cartels, in few instances is data available that allows us to examine post-cartel behavior. In this paper, I use data on inter-island airfares to examine the effects of an antitrust immunity agreement that allowed two airlines to coordinate capacity for a limited period of time. I find not only that prices rose during the period of coordination, but that they remained high until the entry of a new competitor, two and a half years after immunity expired. That the incumbent airlines were able to sustain supracompetitive fares well past the end of immunity suggests even short-lived grants of immunity can have persistent effects. Policy makers should view even temporary grants of immunity with great skepticism, particularly in markets that already exhibit characteristics that may facilitate coordination.A previous version of this paper, Analyzing the Impact of Antitrust Immunity: Price Effects Following the Aloha-Hawaiian Antitrust Immunity Agreement, was circulated as EAG Discussion Paper No. 05-9.