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Airline networks, mergers, and consumer welfare

  • Hüschelrath, Kai
  • Müller, Kathrin

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.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-028.

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Date of creation: 2013
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Handle: RePEc:zbw:zewdip:13028
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  1. Volodymyr Bilotkach, 2011. "Multimarket Contact and Intensity of Competition: Evidence from an Airline Merger," Review of Industrial Organization, Springer, 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. 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.
  4. 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.
  5. Werden, Gregory J & Froeb, Luke M, 1998. "The Entry-Inducing Effects of Horizontal Mergers: An Exploratory Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 525-43, December.
  6. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 83-99, January.
  7. Whinston, Michael D., 2007. "Antitrust Policy toward Horizontal Mergers," Handbook of Industrial Organization, Elsevier.
  8. Michael Mazzeo, 2003. "Competition and Service Quality in the U.S. Airline Industry," Review of Industrial Organization, Springer, vol. 22(4), pages 275-296, June.
  9. 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.
  10. Richard, Oliver, 2003. "Flight frequency and mergers in airline markets," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 907-922, June.
  11. Victor Aguirregabiria & Chun-Yu Ho, 2009. "A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence," Working Papers tecipa-379, University of Toronto, Department of Economics.
  12. 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, London School of Economics and University of Bath, vol. 35(2), pages 195-222, May.
  13. 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.
  14. Borenstein, Severin, 1990. "Airline Mergers, Airport Dominance, and Market Power," American Economic Review, American Economic Association, vol. 80(2), pages 400-404, May.
  15. 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.
  16. 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 549-69, June.
  17. Bittlingmayer, George, 1990. "Efficiency and entry in a simple airline network," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 245-257, June.
  18. Elizabeth E. Bailey & Dong Liu, 1995. "Airline Consolidation and Consumer Welfare," Eastern Economic Journal, Eastern Economic Association, vol. 21(4), pages 463-476, Fall.
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