Interfirm rivalry and firm-specific price elasticities in deregulated airline markets

This paper examines the pattern of a firm's pricing rivalry and its associated price elasticities, as perceived by each firm in a set of duopoly (American and United) airline routes. The authors estimate jointly an aggregate route demand function and the firm-specific price functions derived from the firms' first-order conditions for profit maximisation. The parameters of the marginal cost function are also estimated. This model allows for free variation of estimated ‘conduct parameters’ and price elasticities across airline routes.