Wednesday, June 11, 2014
Jeffrey Prince, Indiana University - Kelley School of Business and Daniel H. Simon Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) analyze The Impact of Mergers on Quality Provision: Evidence from the Airline Industry.
We examine how mergers affect quality provision by analyzing five U.S. airline mergers, focusing on on-time performance (OTP). We find mild evidence that merging carriers’ OTP worsens in the short run. However, we find consistent evidence that in the long run, their OTP improves. Subsequent analyses indicate efficiency gains, not reduced load factor or passenger volume, underlie our long-run result. Additional analyses of quality provision (e.g., flight cancellations) show no long-run worsening in these areas by merging firms. In the long run, airline mergers do not result in worsening performance, at least along several measures, and provide some time-saving efficiencies.