An Empirical Analysis of Inter-firm Rivalry between U.S. LCC and FSC: Estimation of Conjectural Variation Using Crosssectional Data

Abstract

This paper empirically examined inter-firm rivalry between U.S. LCCs and FSCs by using domestic cross-sectional data of 1998. The fashion of competition was measured by computing conjectural variation of each carrier. Our results are that (1) the competition was close to Cournot fashion, regardless of carriers’ market shares or characteristics, (2) carriers behaved more optimistically when LCCs entered remote airports than when they entered primary airports, and (3) FSCs sensitively responded to LCCs’ outputadjusting behaviors when LCCs operated nearby. Our policy implication is that direct competitions between LCCs and FSCs will more improve market welfare than indirect competitions.