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Mergers and Product Quality: Evidence from the Airline Industry

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  • Chen, Yongmin
  • Gayle, Philip

Abstract

Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers: Delta/Northwest and Continental/United. Consistent with the theoretical premise that mergers improve coordination but diminish competitive pressure for quality provision, we find: (i) each merger is associated with a quality increase in markets where the merging firms did not compete pre-merger, but with a quality decrease in markets where they did; and (ii) the quality change can be a U-shaped function of the pre-merger competition intensity.

Suggested Citation

  • Chen, Yongmin & Gayle, Philip, 2013. "Mergers and Product Quality: Evidence from the Airline Industry," MPRA Paper 51238, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:51238
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    File URL: https://mpra.ub.uni-muenchen.de/51238/1/MPRA_paper_51238.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gayle, Philip G. & Thomas, Tyson, 2016. "Assessing firm behavior in carve-out markets: Evidence on the impact of carve-out policy," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 178-194.
    2. repec:eee:retrec:v:66:y:2017:i:c:p:12-25 is not listed on IDEAS
    3. Daniel Rijken & Vincent (V.A.C.) van den Berg, 2017. "The Impact of Airline Mergers on Quality: Why Do Different Mergers Have Such Different Effects?," Tinbergen Institute Discussion Papers 17-079/VIII, Tinbergen Institute.
    4. Gayle Philip G. & Thomas Tyson, 2015. "Product Quality Effects of International Airline Alliances, Antitrust Immunity, and Domestic Mergers," Review of Network Economics, De Gruyter, vol. 14(1), pages 45-74, March.
    5. Joep van Montfort & Vincent A.C. van den Berg, 2017. "The total size of an airline and the quality of its flights," Tinbergen Institute Discussion Papers 17-099/VIII, Tinbergen Institute.

    More about this item

    Keywords

    Mergers; Product Quality; Airlines;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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