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.