IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/13028.html
   My bibliography  Save this paper

Airline networks, mergers, and consumer welfare

Author

Listed:
  • Hüschelrath, Kai
  • Müller, Kathrin

Abstract

We study the consumer welfare effects of mergers in airline networks. Based on the development of a general classification of affected routes, we apply a difference-indifferences approach to exemplarily investigate the price effects of the America West Airlines - US Airways merger completed in 2005. We find that although average prices increased substantially on routes in which both airlines competed either on a non-stop or one-stop basis prior to the merger, substantial average price reductions observed for routes without any premerger overlap suggest that the merger led to a net increase in consumer welfare.

Suggested Citation

  • Hüschelrath, Kai & Müller, Kathrin, 2013. "Airline networks, mergers, and consumer welfare," ZEW Discussion Papers 13-028, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:13028
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/74535/1/747287848.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Volodymyr Bilotkach, 2011. "Multimarket Contact and Intensity of Competition: Evidence from an Airline Merger," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 95-115, January.
    2. John Kwoka & Evgenia Shumilkina, 2010. "The Price Effect Of Eliminating Potential Competition: Evidence From An Airline Merger," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 767-793, December.
    3. Ken Hendricks & Michele Piccione & Guofu Tan, 1995. "The Economics of Hubs: The Case of Monopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 83-99.
    4. Bittlingmayer, George, 1990. "Efficiency and entry in a simple airline network," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 245-257, June.
    5. 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.
    6. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
    7. Elizabeth E. Bailey & Dong Liu, 1995. "Airline Consolidation and Consumer Welfare," Eastern Economic Journal, Eastern Economic Association, vol. 21(4), pages 463-476, Fall.
    8. Kai Hüschelrath & Kathrin Müller, 2013. "Patterns and Effects of Entry in U.S. Airline Markets," Journal of Industry, Competition and Trade, Springer, vol. 13(2), pages 221-253, June.
    9. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
    10. Whinston, Michael D., 2007. "Antitrust Policy toward Horizontal Mergers," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 36, pages 2369-2440, Elsevier.
    11. Brueckner, Jan K. & Spiller, Pablo T., 1991. "Competition and mergers in airline networks," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 323-342, September.
    12. Aguirregabiria, Victor & Ho, Chun-Yu, 2010. "A dynamic game of airline network competition: Hub-and-spoke networks and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 377-382, July.
    13. Borenstein, Severin, 1990. "Airline Mergers, Airport Dominance, and Market Power," American Economic Review, American Economic Association, vol. 80(2), pages 400-404, May.
    14. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
    15. Kaplan, Steven N. (ed.), 2000. "Mergers and Productivity," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226424316, August.
    16. repec:bla:jindec:v:46:y:1998:i:4:p:525-43 is not listed on IDEAS
    17. Richard, Oliver, 2003. "Flight frequency and mergers in airline markets," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 907-922, June.
    18. Michael Mazzeo, 2003. "Competition and Service Quality in the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(4), pages 275-296, June.
    19. Jan K. Brueckner & Yimin Zhang, 2001. "A Model of Scheduling in Airline Networks: How a Hub-and-Spoke System Affects Flight Frequency, Fares and Welfare," Journal of Transport Economics and Policy, University of Bath, vol. 35(2), pages 195-222, May.
    20. Matthew Weinberg, 2008. "The Price Effects Of Horizontal Mergers," Journal of Competition Law and Economics, Oxford University Press, vol. 4(2), pages 433-447.
    21. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 1, number 1.
    22. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Le, Huubinh B. & Yimga, Jules O., 2023. "Codeshare restrictions as antitrust remedy," Transport Policy, Elsevier, vol. 138(C), pages 17-24.
    2. Pavlović, Dejan & Babić, Danica, 2018. "Recent trends in assessment of proposed consolidations in EU airline industry – From discretion to arbitrariness," Transport Policy, Elsevier, vol. 69(C), pages 65-77.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kai Hüschelrath & Kathrin Müller, 2015. "Market Power, Efficiencies, and Entry Evidence from an Airline Merger," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 36(4), pages 239-255, June.
    2. Anming Zhang & Yimin Zhang & Joseph A. Clougherty, 2011. "Competition and Regulation in Air Transport," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 35, Edward Elgar Publishing.
    3. Jan K. Brueckner, 2004. "Network Structure and Airline Scheduling," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 291-312, June.
    4. Fu, Xiaowen & Jin, Huan & Liu, Shaoxuan & Oum, Tae H. & Yan, Jia, 2019. "Exploring network effects of point-to-point networks: An investigation of the spatial patterns of Southwest Airlines’ network," Transport Policy, Elsevier, vol. 76(C), pages 36-45.
    5. Yan, Jia & Fu, Xiaowen & Oum, Tae Hoon & Wang, Kun, 2019. "Airline horizontal mergers and productivity: Empirical evidence from a quasi-natural experiment in China," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 358-376.
    6. Gil, Ricard & Kim, Myongjin, 2021. "Does competition increase quality? Evidence from the US airline industry," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    7. Richard, Oliver, 2003. "Flight frequency and mergers in airline markets," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 907-922, June.
    8. Jia Yan & Xiaowen Fu & Tae Oum, 2008. "Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines," Working Papers 2008-21, School of Economic Sciences, Washington State University.
    9. Hüschelrath, Kai & Müller, Kathrin, 2013. "The competitive effects of firm exit," Economics of Transportation, Elsevier, vol. 2(2), pages 72-85.
    10. Vaze, Vikrant & Luo, Tian & Harder, Reed, 2017. "Impacts of airline mergers on passenger welfare," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 130-154.
    11. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1475-1498, December.
    12. Federico Ciliberto & Emily E. Cook & Jonathan W. Williams, 2019. "Network Structure and Consolidation in the U.S. Airline Industry, 1990–2015," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 3-36, February.
    13. Le Huubinh B. & Yimga Jules, 2019. "Market Power and Marginal Cost Effects in Competing Markets: Evidence from Airline Mergers," Review of Network Economics, De Gruyter, vol. 18(2), pages 63-108, June.
    14. Shen, Ying, 2017. "Market competition and market price: Evidence from United/Continental airline merger," Economics of Transportation, Elsevier, vol. 10(C), pages 1-7.
    15. Borsati, Mattia & Fageda, Xavier, 2024. "Airline price responses in the face of demand shocks: European lessons from the COVID-19 pandemic," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 186(C).
    16. Yetiskul, Emine & Matsushima, Kakuya & Kobayashi, Kiyoshi, 2005. "Airline Network Structure with Thick Market Externality," Research in Transportation Economics, Elsevier, vol. 13(1), pages 143-163, January.
    17. Chen, Jihui, 2024. "The pricing and quality effects of network structure choice: Evidence from American airlines’ international route cancellations," Journal of Air Transport Management, Elsevier, vol. 114(C).
    18. Christopher Mayer & Todd Sinai, "undated". "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why All Delays Are Not Evil," Zell/Lurie Center Working Papers 393, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    19. Jiang, Changmin & Zhang, Anming, 2014. "Effects of high-speed rail and airline cooperation under hub airport capacity constraint," Transportation Research Part B: Methodological, Elsevier, vol. 60(C), pages 33-49.
    20. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1074-1089, September.

    More about this item

    Keywords

    Airline industry; merger; market power; consumer welfare; price effects;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:13028. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zemande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.