Market Power, Efficiencies, and Entry Evidence from an Airline Merger

We investigate the competitive effects of the merger between Delta Air Lines and Northwest Airlines (2009) in the domestic US airline industry. Applying fixed‐effects regression models, we find that the transaction led to short‐term price increases of about 11% on overlapping routes and about 10% on routes that experienced a merger‐induced switch of the operating carrier. Over a longer period, however, our estimation results are consistent with the hypothesis that both merger efficiencies and postmerger entry by competitors initiated a downward trend in price, leaving consumers with a small net price increase of about 3% on the affected routes. Copyright © 2014 John Wiley & Sons, Ltd.