MERGERS AND MARKET POWER -- EVIDENCE FROM THE AIRLINE INDUSTRY.

Abstract

This paper examines price changes associated with airline mergers during 1985-88, a period of natural experimentation in which mergers were not contested by the government. The results show that prices increased on routes served by the merging firms relative to a control group of routes unaffected by the merger. Mergers may lead to more efficient operations but, on the whole, the impact of efficiency gains on airfares is more than offset by exercise of increased market power. Copyright 1993 by American Economic Association.