What's the Difference? Measuring the Effect of Mergers in the Airline Industry

76 Pages Posted: 11 Jun 2020 Last revised: 17 Sep 2023

See all articles by Reed Orchinik

Reed Orchinik

MIT Sloan

Marc Remer

Swarthmore College - Economics Department

Date Written: September 14, 2023

Abstract

We analyze the effect of four US airline mergers using three retrospective techniques: standard difference-in-differences regression, synthetic control, and nearest neighbor matching. We study if these techniques can be reliably applied to study airline mergers, and find a number issues. For example, routes typically specified as controls are potentially impacted by the merger, and the more advanced techniques may be subject to unobservable variable bias. As such, the estimated effect of a merger does not always align in direction or statistical significance across the three methods. We also expand the analysis beyond the average treatment effect on overlap routes. We find that the increase in multi-market contact from each merger caused prices to increase on a large set of non-overlap routes. Lastly, with the aim of providing guidance to antitrust agencies, we analyze the determinants of route-level price effects on overlap routes. We find that even in mergers where the average effect is different from zero (e.g. American/USAir and United/Continental), there is substantial heterogeneity across overlap routes. The route-level effect is predictable based on pre-merger observables, such as the level of HHI.

Keywords: Merger Retrospectives; Airline Industry; Synthetic Control

JEL Classification: L4; D4; L93

Suggested Citation

Orchinik, Reed and Remer, Marc, What's the Difference? Measuring the Effect of Mergers in the Airline Industry (September 14, 2023). Available at SSRN: https://ssrn.com/abstract=3602765 or http://dx.doi.org/10.2139/ssrn.3602765

Reed Orchinik

MIT Sloan ( email )

100 Main Street
E62
Cambridge, MA 02142
United States

Marc Remer (Contact Author)

Swarthmore College - Economics Department ( email )

Swarthmore, PA 19081
United States

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