When the U.S. airline industry was deregulated, researchers have questioned whether the deregulation has ensured a truly competitive environment. If so, the profitability of any major airline would be related only to overall industry conditions (e.g, disposable income and market share) but not to any unchanging feature of that airline. This profitability hypothesis was tested using multiple regression (Transportation Journal, Winter 1990). Data for n = 234 carrier-years were used to fit the model
E(y) = β₀ + β₁x₁ + β₂ x₂ + β₃ x₃ + .... + β₃₀ x₃₀

where

y = Profit rate

x₁ = Real personal disposable income

x₂ = Industry market share

x₃ – x₃₀ = Dummy variables 1coded 0–12 for the 29 air carriers investigated in the study

The results of the regression are summarized in the table. Interpret the results. Is the profitability hypothesis supported?

Transcribed Image Text:

variable B estimate t value p-value Intercept 1.2642 .09 .9266 -.0022 - 99 .8392 X2 4.8405 3.57 .0003 X3-X30 (not given) R = 3402 F(full model) = 3.49 p-value = .0001 F (for testing carrier dummies) = 3.59 p-value = .0001