The Price Effect of Eliminating Potential Competition: Evidence from an Airline Merger

27 Pages Posted: 30 Dec 2010  

John E. Kwoka, Jr.

Northeastern University - Department of Economics

Evgenia Shumilkina

Northeastern University

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Date Written: December 24, 2010

Abstract

This paper analyzes the gain in pricing power that a firm achieves by merging with a potential competitor in its market. Using pricing data for the merger of USAir and Piedmont, empirical analysis finds that prices rose by 5.0 to 6.0 per cent on routes that one carrier served and the other was a potential entrant. This was more than half the increase on routes where the two carriers had been direct competitors. Other important factors included carrier size, market concentration, incumbent's identity and the potential entrant's presence at one or both endpoints.

Suggested Citation

Kwoka, Jr., John E. and Shumilkina, Evgenia, The Price Effect of Eliminating Potential Competition: Evidence from an Airline Merger (December 24, 2010). The Journal of Industrial Economics, Vol. 58, Issue 4, pp. 767-793, 2010. Available at SSRN: https://ssrn.com/abstract=1732392 or http://dx.doi.org/10.1111/j.1467-6451.2010.00433.x

John E. Kwoka (Contact Author)

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
(617) 373-2882 (Phone)
(617) 373-3640 (Fax)

Evgenia Shumilkina

Northeastern University ( email )

Boston, MA 02115
United States

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