Thursday, August 15, 2013

Airline networks, mergers, and consumer welfare

Posted by D. Daniel Sokol

Kai Huschelrath (ZEW) and Kathrin Muller (ZEW) study Airline networks, mergers, and consumer welfare.

ABSTRACT: 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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