Merger Simulations in the American Airline Industry

Tonnerre, Antoine (2017): Merger Simulations in the American Airline Industry.

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 ?

• Item Type: MPRA Paper
• Language: English
• Keywords: merger simulations; airlines; cournot; econometrics; industrial organization; cost estimation; demand estimation
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices; L - Industrial Organization > L4 - Antitrust Issues and Policies > L44 - Antitrust Policy and Public Enterprises, Nonprofit Institutions, and Professional Organizations

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