Measuring changes in multiproduct market structure: An application to U.S. airlines

Abstract

The Entropy Index decomposition property is utilized to construct an aggregate index of route concentration that accounts for the multiple products, customer preferences and industry concentration. The Directed Divergence Statistic, an aggregate index which measures changes in market structure at the airline specific level, is similarly decomposed. We find that route concentration more closely resembles a duopoly than an industry with 16 major carriers. Further, the Directed Divergence Statistic decomposition reveals that while the industry seems to have absorbed the loss of national three carriers, those remaining engineered substantial changes in their product offerings to accommodate passengers.