Mergers Increase Output When Firms Compete by Managing Revenue
Cornell University - School of Hotel Administration
Vanderbilt University - Strategy and Business Economics
Vanderbilt University - Department of Mathematics
Vanderbilt Law and Economics Research Paper No. 10-27
From a panel data sample of 898 hotel mergers, we find that mergers increase occupancy without reducing capacity. In some regressions, price also appears to increase. These effects are small, but statistically and economically significant. And they occur only in markets with the highest capacity utilization and highest uncertainty. These findings lead us to reject simple models of price or quantity competition in favor of models of “revenue management,” where firms price to fill available capacity in the face of demand uncertainty. The results suggest that mergers in revenue-management industries should not be analyzed using models of competition that miss significant industry features. The same warning applies to the scrutiny of information sharing by proximate businesses – if outright merger does not appear to have anticompetitive effects then neither should information sharing, again provided that the significant features of the industry are taken into account.
Number of Pages in PDF File: 44
Keywords: merger, hotel, antitrust, revenue management
JEL Classification: D21, L41, L83working papers series
Date posted: September 3, 2010 ; Last revised: November 20, 2012
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