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Demand shocks, capacity coordination, and industry performance: lessons from an economic laboratory
Author(s) -
Hampton Kyle,
Sherstyuk Katerina
Publication year - 2012
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2012.00160.x
Subject(s) - oligopoly , argument (complex analysis) , competition (biology) , process (computing) , demand shock , capacity utilization , economics , industrial organization , business , aloha , microeconomics , cournot competition , ecology , telecommunications , biochemistry , chemistry , computer science , throughput , wireless , biology , operating system
Antitrust exemptions granted to businesses under extenuating circumstances are often justified by the argument that they benefit the public by helping producers adjust to otherwise difficult economic circumstances. Such exemptions may allow firms to coordinate their capacities, as was the case of the post‐September 11, 2001, antitrust immunity granted to Aloha and Hawaiian Airlines. We conduct economic laboratory experiments to determine the effects of explicit capacity coordination on oligopoly firms' abilities to adjust to negative demand shocks and on industry prices. The results suggest that capacity coordination speeds the adjustment process, but also has a clear procollusive effect on firm behavior .