Examining the Coordinated Effects of the AA/USAir Merger

Abstract

We examine the impact of mergers involving maverick firms on pricing, specifically focusing on the American and US Airways merger. We document substantial increases in connecting flight prices offered by nonmerging carriers on routes where US Airways previously held a dominant position. This surge occurred after the merger eliminated Advantage Fares, a price discounting program from US Airways. These pricing patterns may be attributed to the coordinated effects of the merger, as we eliminate several alternative explanations. Our theoretical analysis demonstrates that changes in the cost structure induced by the merger can explain the incentive for collusion among nonmerging carriers.

Keywords: Airline Mergers, Merger Analysis, Coordinated Effects

JEL Classification: L93, L41, L44