Merger with a Maverick Firm: Examining the Coordinated Effects of the AA/USAir Merger

37 Pages Posted: 2 Jul 2021 Last revised: 6 Jul 2021

See all articles by Soo Jin Kim

Soo Jin Kim

ShanghaiTech University - School of Entrepreneurship and Management

Yongjoon Park

University of Massachusetts Amherst; University of Maryland

Date Written: June 30, 2021

Abstract

This paper studies the coordinated effects of the merger between American Airlines and US
Airways by examining the extent to which the connecting prices of the nonmerging legacy carriers
(Delta and United) evolved when the merger eliminated Advantage Fares, a connecting flight price
discounting program offered by US Airways. In our empirical analysis, we find that postmerger
nonmerging legacy carriers substantially increased their connecting flight prices on routes where US Airways had a dominant position, and a similar pattern can be found for the merging carriers on
routes where nonmerging legacy carriers had a dominant position. We next conduct a theoretical
analysis in which we show that these empirical findings can be explained by the elimination of
maverick firms and how such elimination facilitates coordinated conduct among legacy carriers.
Finally, we note the potential importance of connecting services in merger analysis in the airline
industry.

Keywords: Airline Mergers, Merger Analysis, Coordinated Effects, Maverick Firm

JEL Classification: L93, L41, L44

Suggested Citation

Kim, Soo Jin and Park, Yongjoon, Merger with a Maverick Firm: Examining the Coordinated Effects of the AA/USAir Merger (June 30, 2021). ShanghaiTech SEM Working Paper No. 2021-006, Available at SSRN: https://ssrn.com/abstract=3877895 or http://dx.doi.org/10.2139/ssrn.3877895

Soo Jin Kim (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Yongjoon Park

University of Massachusetts Amherst ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003
United States

HOME PAGE: http://https://www.yongjoonpark.com

University of Maryland

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