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Mergers Increase Output When Firms Compete by Managing Revenue

44 Pages Posted: 3 Sep 2010 Last revised: 20 Nov 2012

Arturs Kalnins

Cornell University - School of Hotel Administration

Luke Froeb

Vanderbilt University - Strategy and Business Economics

Steven Tschantz

Vanderbilt University - Department of Mathematics

Abstract

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.

Keywords: merger, hotel, antitrust, revenue management

JEL Classification: D21, L41, L83

Suggested Citation

Kalnins, Arturs and Froeb, Luke and Tschantz, Steven, Mergers Increase Output When Firms Compete by Managing Revenue. Vanderbilt Law and Economics Research Paper No. 10-27. Available at SSRN: https://ssrn.com/abstract=1670278 or http://dx.doi.org/10.2139/ssrn.1670278

Arturs Kalnins (Contact Author)

Cornell University - School of Hotel Administration ( email )

545D Statler Hall
Ithaca, NY 14853-6902
United States

Luke M. Froeb

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Steven T. Tschantz

Vanderbilt University - Department of Mathematics ( email )

Nashville, TN 37240
United States

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