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When firms meet in more than one market, it is generally regarded that the possibility of collusion will increase because of mutual interdependence (or mutual forbearance). Mutual forbearance is tacit collusion that directly results from familiarity and deterrence. This paper examines the effect of multimarket contact on airline prices in the Chinese domestic airline market where private and low-cost carriers have been thriving and high-speed rail services growing quickly in the last few years. We find strong evidence supporting the mutual forbearance hypothesis in high revenue markets. We also find that the collusive effect due to increasing multimarket contact is insignificant within the same airline group, whereas multimarket contact between airlines in different airline groups triggers higher airfares. [ABSTRACT FROM AUTHOR]

The High-speed Railway (HSR) network in China is the largest in the world, competing intensively with airlines for inter-city travel. Panel data from 2007 to 2013 for 138 routes with HSR-air competition were used to identify the ex-post impacts of the entry of HSR services, the duration of operating HSR services since entry, and the specific impacts of HSR transportation variables such as travel time, frequency, and ticket fares on air passenger flows in China. The findings show that the entry of new HSR services in general leads to a 27% reduction in air travel demand. After two years of operating HSR services, however, the negative impact of HSR services on air passenger flows tends to further increase. The variations of the frequency in the temporal dimension and the travel time in the spatial dimension significantly affect air passenger flows. Neither in the temporal nor spatial dimensions are HSR fares strongly related to air passenger flows in China, due to the government regulation of HSR ticket prices during the period of analysis. The impacts of different transportation variables found in this paper are valuable to consider by operational HSR companies in terms of scheduling and planning of new routes to increase their competitiveness relative to airlines. [ABSTRACT FROM AUTHOR]