Econometric analysis of airline rivalry and consumer compliance with prescription drugs

Abstract

My dissertation is comprised of three essays in industrial organization. The first twochapters focus on strategy and competition due to supply shocks in airline industry, and the third chapter investigates Medicare beneficiaries noncompliance with their medication due to high cost. In the first essay, I explore the strategic behavior and the competitive effects of offering a new product in an oligopoly. Using the introduction of JetBlue Mint, premium seats offered by JetBlue, I quantify the determinants for JetBlue market choices. The time-to-event analysis results suggest that JetBlue is more likely to offer its Mint services on long-haul routes where other carriers actively offer higher ratio of business class seats. The findings also reveal that one of the main motivations behind the introduction of JetBlue Mint is to attract competitors' consumers in less concentrated markets in order to gain higher market share. I also estimate the effect of the introduction of Mint on the price of incumbents' low and high quality products. The results from the causal inference analysis indicate a reduction of 18% - 51.4% in the price of high quality products. These results support JetBlue's claim of successfully driving down the price of the premium seats by 50%. However, despite this effect, the introduction of Mint is estimated to increase the price of lower quality products by 28%-80%. The grounding of the Boeing 737 MAX aircraft by the FAA and other regulators worldwideafter two fatal crashes caused a significant supply shock in both the domestic US air travel market and elsewhere. We exploit the different fleet compositions of the largest domestic carriers in the US and particularly the differential effect this regulatory grounding had on American, Southwest and United Airlines to calculate price and quantity effects on affected routes, as well as spillover effects on other routes served by these carriers using a difference-indifferences approach. We further investigate the heterogeneous effect on different routes, based on route characteristics including presence of hubs, and competition. Our analysis suggests that the affected airlines make adjustment to their schedules and fleet deployment to account for this supply shock leading to spillover effects even on routes where the 737 MAX aircraft is not regularly deployed. We find sizable and significant increases in ticket prices between 3% to 7% on non-MAX carriers, and smaller or negligible increase in prices on Max carriers. Using previously defined measures of cost-related medication nonadherence (CRN), mythird essay aims to examine the prevalence of CRN separately among elderly and nonelderly disabled Medicare beneficiaries and explore the relationship between CRN and socioeconomic status, health status, chronic illness, drug coverage, and demographic characteristics. In addition, we analyze the drug cost reduction strategies and the behavior of spending less to afford medicines among the same sub populations. The analysis draws upon data from the 2016 Medicare Current Beneficiary Survey (MCBS) which is a survey of a national sample of 14778 Medicare beneficiaries conducted by the Centers for Medicare and Medicaid Services (CMS). To support our conclusions from these analyses, we also conduct a causal analysis of the impact of Part D low-Income Subsidy program on CRN. Our findings indicate that Medicare beneficiaries enrolled in this program are at lower risk of CRN by approximately 4%-7% across different sample sizes.--Author's abstract