Does Competition Benefit Complements? Evidence from Airlines and Hotels

Abstract

We analyze how changes in the market structure of one industry—airlines—affect the performance of firms in a complementary industry—hotels—using an instrumental variables strategy to account for potential correlation between unobserved shocks to both markets. We find that more intense airline competition boosts hotel performance across all standard measures: price, occupancy rate, and revenue per available room. Spillovers vary across hotel quality and passenger type: Lower-quality branded hotels serving more price-sensitive travelers, most likely brought into the market because of more intense airline competition, benefit the most. However, performance spillovers do not translate into higher hotel entry. This paper was accepted by Joshua Gans, business strategy. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.4568 .

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