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

68 Pages Posted: 11 Jun 2020 Last revised: 14 Oct 2021

See all articles by Reed Orchinik

Reed Orchinik

MIT Sloan

Marc Remer

Swarthmore College - Economics Department

Date Written: October 13, 2021

Abstract

We analyze the effect of four recent US airline mergers using three retrospective techniques: standard difference-in-differences regression, synthetic control, and nearest neighbor matching. In doing so, we compare the performance of the most recently developed merger-retrospective methodologies. We find that the three methods do not always align in the direction or statistical significance of the estimated merger effect. Furthermore, synthetic control and nearest neighbor matching are sensitive to the set of characteristics used to select control markets. We develop a test, in the context of merger retrospectives, for the extent to which synthetic control and nearest neighbor matching control for unobservable determinants of pre-merger prices. Overall, we find that the American Airlines/USAir merger lowered prices, whereas the United/Continental merger increased prices. Even so, these findings are not robust across methodologies or specifications. We are unable to draw any consistent conclusions about the Southwest/AirTran or Delta/Northwest mergers.

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 (October 13, 2021). 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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