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Peer Reviewed Publications

Burger, John D., Norman Sedgley, and Kerry M. Tan (2017). "Macroeconomic Shocks and Corporate R&D," The B.E. Journal of Macroeconomics 17(2).
ABSTRACT: This paper investigates the impact of output and credit market shocks on R&D spending in advanced economies and builds on the commonly accepted view that credit constraints lead to procyclical R&D spending. A theoretical model is developed where output and credit shocks are treated separately, though these shocks may be highly correlated. The estimation procedure utilizes a panel vector autoregression (VAR) in order to empirically identify the role of credit market shocks separately from the output shocks more commonly studied in the existing literature. The primary empirical findings can be summarized as follows: (1) R&D responds pro-cyclically to output shocks at the macroeconomic level, and (2) R&D co-moves positively with credit. More concretely, the results indicate that negative output shocks induce a simultaneous and subsequent contraction in credit and R&D consistent with a model where credit constraints drive cyclical adjustments to R&D. The impact of output and credit shocks on R&D are economically significant and a simulation exercise suggests the shocks associated with the global financial crisis have reduced US R&D by 10% relative to the pre-crisis path.
Working Paper Version

Tan, Kerry M. (2016). "Incumbent Response to Entry by Low-Cost Carriers in the U.S. Airline Industry," Southern Economic Journal 82(3), 874-892.
ABSTRACT: This paper studies incumbent price response to entry by low-cost carriers in the U.S. airline industry. I find that legacy carrier incumbents decrease their mean airfare, 10th percentile airfare, and 90th percentile airfare following entry by a low-cost carrier. Airfares decrease by a larger percentage at the right tail of the incumbents' price distribution than at the left tail, suggesting that increased competition from low-cost carrier entrants leads to lower price dispersion.
Working Paper Version       Online Appendix

Tan, Kerry M. and Andrew Samuel (2016). "The Effect of De-Hubbing on Airfares," Journal of Air Transport Management 50, 45-52.
ABSTRACT: This paper studies the price effect of de-hubbing, which occurs when an airline ceases hub operations at an airport. We develop a simple theoretical model to study the impact of de-hubbing on prices and quantities of direct flights at the hub airport. Using an event study of seven cases of de-hubbing between 1993 and 2009, we analyze how average airfares change following de-hubbing. Consistent with the theoretical implications, the empirical results suggest that airfares decrease when there is a low-cost carrier presence at the de-hubbed airport, whereas airfares increase when the de-hubbed airport is not serviced by a low-cost carrier.
Working Paper Version

Sedgley, Norman H. and Kerry M. Tan (2015). "The Roles of Innovators and Labor in a Schumpeterian Factor Endowments Based Model of Intraindustry Trade," Review of International Economics 23(5), 873-896.
ABSTRACT: This paper builds a model of Schumpeterian innovation and trade that emphasizes endowments of innovators and labor as a key factor in determining the pattern of trade. The model suggests a strong complementarity between intraindustry and interindustry trade. The pattern of interindustry vs. intraindustry trade is analyzed using the Grubel Lloyd index. The theoretical model predicts that the prominence of intraindustry trade is a nonlinear function of the ratio of the proportion of world knowledge domestically generated to the domestic share of the world labor supply. Strong empirical evidence for this key result is presented and implications are discussed.
Working Paper Version

Dresner, Martin, Cunyet Eroglu, Christian Hofer, Fabio Mendez, and Kerry Tan (2015). "The Impact of Gulf Carrier Competition on U.S. Airlines," Transportation Research Part A: Policy and Practice 79, 31-41.
ABSTRACT: Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded aggressively and are creating an increasingly dense global network. These carriers’ future growth prospects, however, hinge on their ability to gain access to lucrative markets in Europe and America, for example. Existing bilateral agreements stifle the Gulf carriers' ambitious expansion plans in some instances, and incumbent carriers lobby to restrict further market access. To contribute to this debate, the objective of this research is to empirically examine the effects of Gulf carrier competition on U.S. carriers’ passenger volumes and fares in international route markets. Based on data obtained from the U.S. Department of Transportation, the empirical results suggest that greater competition by Gulf carriers in U.S. international markets is associated with 1) significant growth in U.S.-Middle East traffic volumes and 2) small but statistically significant traffic losses and fare reductions for U.S. carriers in route markets connecting the U.S. with Africa, Asia, Australia and Europe.
Working Paper Version

Working Papers

"Outsourcing and Price Competition: An Empirical Analysis of the Partnerships between Legacy Carriers and Regional Airlines" (Revise & Resubmit: Review of Industrial Organization)
ABSTRACT: This paper investigates the determinants and competitive effects of legacy carriers' outsourcing decision with independent regional airlines. Legacy carriers allocate a larger share of their operations to an independent regional airline partner compared to their own fleet or a wholly owned regional airline on routes experiencing stronger competition, particularly from low-cost carriers. Moreover, legacy carriers' airfares are lower on routes that they outsource more prominently to an independent regional airline. The results suggest that increased route competition is a motivation for the growing use of independent regional airlines by legacy carriers.

"The Symmetry and Cyclicality of R&D Spending in Advanced Economies," with Norman Sedgley and John Burger. (Revise & Resubmit: Empirical Economics)
ABSTRACT: This paper explores the impact of cyclical macroeconomic fluctuations on corporate R&D spending. Most existing studies are conducted at the industry or firm level and find corporate R&D to be procyclical. Some studies also provide evidence of an asymmetry at the firm and industry level, such that R&D is more responsive to economic downturns. We investigate whether a reduction in the availability of credit during recessions can explain the behavior of R&D spending at the macroeconomic level. A theoretical model is developed to treat output fluctuations separately from credit market conditions, though these factors are allowed to be correlated. Our theoretical model is used to demonstrate that the impact of the business cycle could be dependent on credit market conditions. Our empirical analysis reveals that credit conditions are particularly important during economic downturns, although this result is primarily driven by the Great Recession. Our most robust empirical finding is that R&D is symmetrically procyclical even after controlling for credit market conditions. We conclude that credit market conditions are not sufficient to fully explain the procyclical behavior of R&D and that procyclical incentives for innovative activity are also likely to play an important role.

"Mergers and Product Quality: A Silver Lining from De-Hubbing in the U.S. Airline Industry," with Nicholas Rupp. (Under Review)
ABSTRACT: This paper investigates how de-hubbing, which occurs when an airline ceases hub operations, impacts product quality. Examining four cases of de-hubbing following U.S. airline mergers between 1998 and 2016, we analyze three product quality measures: on-time performance, travel time, and flight cancellations. In order to isolate a merger's impact on product quality, we compare the results of four de-hubbing events that followed a merger with three de-hubbing cases that occurred independently of a merger. We find larger product quality improvements occur from de-hubbing events which follow airline mergers. While state attorney generals have opposed recent airline mergers based on concerns about potential job losses and a reduction in airport service following airport de-hubbing, we find a silver lining from mergers as airlines improve product quality at de-hubbed airports due to more reliable flight schedules and shorter travel times.

Research in Progress

"Product Pruning or Fighting Brand? The Effect of Regional Airlines on Legacy Carriers' Product Line"
"Measuring Merger Efficiencies: A Retrospective on Delta-Northwest," with Daniel Greenfield
"Licensing Multi-Family Dwellings in Baltimore City," with Andrew Samuel and Jeremy Schwartz
"The Effect of Product Quality Competition on Political Lobbying," with Michael Plouffe

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