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Merger Simulations in the American Airline Industry

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  • Tonnerre, Antoine

Abstract

There has been a long history of mergers in the airline industry in the U.S.A., even more after the Airline Deregulation Act in 1978. Besides, merger simulations are an increasingly popular exercise that allow for well-motivated predictions regarding the outcome of the mergers. This is of great use for competition authorities. There has already been some work on this topic, from Peters (2006). This paper will differ in the following: the most recent data will be used, merger simulations will be performed at the market level, marginal costs will be directly estimated, and Cournot conduct will be assumed. Moreover, almost twenty years from now, researchers already predicted the reduction of the number of airlines in this industry in the U.S.A., because of its network nature. This reduction lead to increased market power, but also to increased efficiencies (see for instance Borenstein, 1990, 1992, and Kim & Singal 1993). In the end, do mergers in this industry automatically raise prices and reduce volumes? Are they still desirable today and if so, under which conditions ?

Suggested Citation

  • Tonnerre, Antoine, 2017. "Merger Simulations in the American Airline Industry," MPRA Paper 84395, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84395
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    References listed on IDEAS

    as
    1. Severin Borenstein, 1992. "The Evolution of U.S. Airline Competition," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 45-73, Spring.
    2. Ng, Charles K & Seabright, Paul, 2001. "Competition, Privatisation and Productive Efficiency: Evidence from the Airline Industry," Economic Journal, Royal Economic Society, vol. 111(473), pages 591-619, July.
    3. Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
    4. Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
    5. Philip G. Gayle, 2004. "Does Price Matter? Price and Non-price Competition in the Airline Industry," Econometric Society 2004 North American Summer Meetings 163, Econometric Society.
    6. Peters, Craig, 2006. "Evaluating the Performance of Merger Simulation: Evidence from the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 49(2), pages 627-649, October.
    7. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, vol. 83(3), pages 549-569, June.
    8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    9. Evans, William N & Kessides, Ioannis N, 1993. "Localized Market Power in the U.S. Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 66-75, February.
    10. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    merger simulations; airlines; cournot; econometrics; industrial organization; cost estimation; demand estimation;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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