Measuring strategic firm interaction in product-quality choices: The case of airline flight frequency

- Product-quality competition is the focus of large theoretical literature.
- But there is little empirical work.
- Paper studies quality competition in airline industry, focusing on flight frequency.
- Estimates flight-frequency reaction functions.
- Results show that frequencies are strategic complements.

This paper investigates strategic interaction among airlines in product-quality choices. Using an instrumental variables approach, the paper estimates flight-frequency reaction functions, which relate an airline׳s frequency on a route to its own characteristics and to the frequencies of competing airlines. A positive reaction function slope is found in some cases, suggesting the presence of strategic interaction in the choice of frequencies. The paper also asks whether multimarket contact generates mutual forbearance in frequency competition, finding no evidence for such an effect.