Market structure and product quality: A study of the 2002 Japanese airline merger

This study examines the economic consequences of a horizontal merger between Japanese airlines that took place in 2002, with particular emphasis on quality responses to the airline merger. A structural model allows firms to determine not only prices but also flight frequencies. The obtained estimates would reject the hypothesis that the merger facilitated coordinated effects. Efficiency gains from the merger are estimated as not trivial, and are more strongly observed in marginal costs per flight, rather than in marginal costs per passenger. Welfare effects of the merger are positive, but vary by market structure. Neglecting endogenous flight frequency overstates the welfare gains, especially for smaller markets. Finally, remedial measures imposed by the authority did little for the merger outcomes.