How Firms Absorb Demand Side Shocks: Evidence from a Natural Experiment

28 Pages Posted: 25 May 2008

See all articles by Yuriy Gorodnichenko

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Oleksandr Talavera

University of Birmingham

Volodymyr Bilotkach

Newcastle Business School

Abstract

We analyze impact of the freeway interchange collapse in San Francisco Bay area on difference in airfare quotes for travel into the area's three main airports. The incident temporarily made Oakland airport a less attractive choice for traveling to San Francisco, so we hypothesize that fares for travel into Oakland will be relatively lower while the freeway interchange was out of service than afterwards. We test our contention using the sample of fare quotes collected on-line, and find the expected effect in the magnitude of 6-7 percent. Our results imply the following conclusions. First, the demand-side shock was well absorbed by the supply side. Second, return to status quo once the shock vanished was swift.

Keywords: Natural experiment, congestion, multi-airport markets

JEL Classification: D21, C81, L20, L93

Suggested Citation

Gorodnichenko, Yuriy and Talavera, Oleksandr and Bilotkach, Volodymyr, How Firms Absorb Demand Side Shocks: Evidence from a Natural Experiment. Available at SSRN: https://ssrn.com/abstract=1136469 or http://dx.doi.org/10.2139/ssrn.1136469

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Oleksandr Talavera

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Volodymyr Bilotkach (Contact Author)

Newcastle Business School ( email )

208, City Campus East-1
Newcastle upon-Tyne, NE1 8ST
United Kingdom

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