Date Added: Sep 2010
The authors investigate the effects of Chapter 11 bankruptcy filings on product market competition using data from the US airline industry. They find that bankrupt airlines permanently downsize their national route structure, their airport-specific networks, and their route-specific flight frequency and capacity. They also find that bankrupt airlines lower their route-specific prices while under bankruptcy protection, and increase them after emerging. They do not find robust evidence of significant changes by the bankrupt airline's competitors along any of the dimensions above. Overall, the results are consistent with the hypothesis that bankruptcy is the result of a war of attrition over capacity and network cutbacks.