Chapter 6: The Effects of Mergers on Airline Performance and Social Welfare

This chapter reviews the key results obtained in previous studies of airline mergers. It is found that the effect of mergers on airfares is dependent on the network configurations of merging airlines. Fare increases are frequently observed on overlapped routes. However, if the networks of two merging airlines are complementary, the expanded network after the merger leads to cost savings, increase in travel options, and improvement in service quality. Therefore, in a deregulated market, with few entry barriers, relaxing merger regulations is likely to improve welfare. However, most welfare evaluations do not incorporate quality changes or dynamic competition effects. Empirical investigations are primarily ex post analysis of mergers that have already passed antitrust reviews. The relationship between market concentration and welfare might be nonlinear and market specific. Therefore, airline mergers and alliances should be reviewed case by case. Methodological improvements are needed in future studies to control for the effects of complicating factors inherent in ex post evaluations.