ESTIMATING BERRY'S MODEL OF ENTRY IN SOUTH EAST ASIA'S AIRLINE INDUSTRY.

Abstract

The gradual process of liberalization in South East Asia’s airline industry over the last two decades hints towards entry into airline markets within the region. This study finds that firm heterogeneity and the number of firms in a market play important roles in influencing the entry decisions of firms. Specifically, a stronger airport presence increases the likelihood of entry, and a larger number of firms in the market decreases the likelihood of entry. These results were obtained by employing Berry’s (1992) structural model, which bases entry on underlying profitability. This model estimates the entry of firms simultaneously, which overcomes the endogeneity in simpler regression models that ignore the strategic effects present in oligopoly markets. While this method has some methodological difficulties in reliably estimating true parameter values, it appears to have predictive superiority over the simple probit regression, making it more useful in informing policy.