We construct measures of industry performance and welfare in the U.S. automobile market from 1980 to 2018. We estimate a demand model using product-level data on market shares, prices, and attributes, and consumer-level data on demographics, purchases, and stated second choices. We estimate marginal costs assuming Nash-Bertrand pricing. We relate trends in consumer welfare and markups to trends in market structure and the composition of products. Although real prices rose, we find that markups decreased substantially, and the fraction of total surplus accruing to consumers increased. Consumer welfare increased over time due to improved product quality and improved production technology.

We develop a model of inter-temporal and intra-temporal price discrimination by monopoly airlines to study the ability of different discriminatory pricing mechanisms to increase efficiency and the associated distributional implications. To estimate the model, we use unique data from international airline markets with flight-level variation in prices across time, cabins, and markets and information on passengers’ reasons for travel and time of purchase. The current pricing practice yields approximately 77% of the first-best welfare. The source of this inefficiency arises primarily from private information about passenger valuations, not dynamic uncertainty about demand. We also find that if airlines could discriminate between business and leisure passengers, total welfare would improve at the expense of business passenger surplus. Also, replacing the current pricing that involves screening passengers across cabin classes with offering a single cabin class has minimal effect on total welfare.

We provide an econometric framework for estimating a game of simultaneous entry and pricing decisions while allowing for correlations between unobserved cost and demand shocks. We use our framework to account for selection in the pricing stage. We estimate the model using data from the US airline industry and find that not accounting for endogenous entry leads to biased estimation of demand elasticities. We simulate a merger between American and US Airways and find that product repositioning and postmerger outcomes depend on how we model the characteristics of the merged firm as a function of the premerger firms’ characteristics.