The International Drivers of Domestic Airline Mergers in Twenty Nations: Integrating Industrial Organization and International Business
WZB, Markets and Political Economy Working Paper No. SP II 2005-06
47 Pages Posted: 15 May 2005
Date Written: April 2005
The domestic airline merger phenomenon of the late 1980s and early 1990s sparked a great deal of Industrial Organization (IO) literature; yet, that literature neglected non-US domestic mergers and potential for international competitive gains. Using an International Business perspective to complement an IO analysis, I argue that factoring international competitive incentives helps explain domestic airline merger activity. A Cournot model of airline competition illustrates that domestic mergers, via enhanced domestic networks and reduced domestic competition, generate international competitive gains. Further, empirical tests - using a structural-equations approach on panel data covering international city-pair market segments - support domestic mergers improving international competitiveness.
Keywords: Airline mergers, imperfect competition, international determinants
JEL Classification: L13, F14, L93
Suggested Citation: Suggested Citation