Multimarket Contact and Price: An analysis of two counteracting effects

In this empirical research the relationship between multimarket contact and price is analyzed. Whereas former empirical work often finds only evidence for a positive effect of multimarktet contact, in the work it is argued that this effect is complemented by a negative effect on price. A panel of US domestic airline data from 2003 until 2016 is used for several fixed effect models. Through the inclusion of an interaction term of multimarket contact and carrier size it becomes possible to distinguish between two counteracting effects. And indeed robust evidence for the coexistence of both a positive and a negative effect of multimarket contact on airfares is found. For the average airline the eventual effect is negative, whereas it becomes more positive when the size of the carrier increases.