Collude, Compete, or Both? Deregulation in the Norwegian Airline Industry

The purpose of this paper is to test the nature of competition concerning price and capacity setting in the Norwegian airline industry after the deregulation in 1994. Did the two airlines, SAS and Braathens, compete on prices and capacities (competition), collude on prices and capacities (collusion) or collude on prices and compete on capacities (semicollusion)? We reject the hypothesis that they achieved collusion, and we find the observed behaviour consistent with semicollusive behaviour and inconsistent with competitive behaviour. Mailing address: Lars Sørgard, Department of Economics, Norwegian School of Economics and Business Administration, N-5045 Bergen, Norway. * We thank Joseph E. Harrington Jr., Terje Lensberg, the editor Steven A. Morrison and an anonymous referee for valuable comments. Thanks also to seminar participants on the EARIE conference in Copenhagen 1998, the University of Stockholm October, 1998, the second Applied IO CEPR workshop in Lisbon in July, 2000 Our research has been partly financed by the program ‘Næring, Finans og Marked’ at the Research Council of Norway through SNF.