Multimarket Contact and Service Quality: Evidence From On-Time Performance In the U.S. Airline Industry

Abstract

We examine the relationship between multimarket contact and service quality. We offer two hypotheses: (1) multimarket contact negatively affects service quality and (2) multimarket contacts in less competitive markets more negatively affect service quality. We test these hypotheses using U.S. airline on-time performance data to measure service quality. We find that multimarket contact increases delays and that this effect is greater for contacts on more concentrated routes, although the effect diminishes on very highly concentrated routes. These findings provide support for the mutual forbearance hypothesis and suggest that multimarket contact facilitates tacit collusion on quality as well as price.