Working Paper: NBER ID: w24214
Authors: Sophia Ying Li; Joe Mazur; Yongjoon Park; James W. Roberts; Andrew Sweeting; Jun Zhang
Abstract: We estimate a model of service choice and price competition in airline markets, allowing for the carriers that provide nonstop service to be a selected subset of the carriers competing in the market. Our model can be estimated without an excessive computational burden and we use the estimated model to illustrate the effects of selection on equilibrium market structure and to show how accounting for selection can change predictions about post-merger market power and repositioning, in ways that are consistent with what has been observed after actual mergers, and possible merger remedies.
Keywords: Airline Mergers; Service Choice; Price Competition; Market Structure
JEL Codes: C31; C35; C54; L13; L4; L93
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Selection accounted for (C52) | prediction of new nonstop service initiation post-merger is significantly lower (L93) |
| Carrier characteristics and service choices (L96) | post-merger price increases (D43) |
| Ignoring selection (C52) | predicts new nonstop carriers would effectively constrain the merged firm's pricing (D43) |
| Characteristics of new entrants (M13) | less effective competitors than carriers providing nonstop service prior to merger (L93) |