Multimarket contact, alliance membership, and prices in international airline markets

Abstract

This paper tests the mutual forbearance view in the context of airline alliances in the international air travel market. Using passenger booking and airfare data on transpacific routes, we find consistent evidence for the positive association between multimarket contact and airfares. Our results also suggest that multimarket contact between non-aligned airlines is associated with higher airfares, whereas multimarket contact between airlines in the same alliance has no additional upward impact on airfares. Moreover, it is shown that higher airfares tend to exist when airlines have greater multimarket contact on open-skies routes. In restrictive (non-liberal) international markets, however, multimarket contact may not affect airfare.