Princeton University Library Catalog
- Author/Artist:
- Lite, Samuel [Browse]
- Format:
- Senior thesis
- Language:
- English
- Advisor(s):
- Kalouptsidi, Myrto [Browse]
- Department:
- Princeton University. Department of Economics [Browse]
- Class year:
- 2014
- Description:
- 71 pages
- Summary note:
- The merger of US Airways and American Airlines is the largest and most recent
headline event in a turbulent period for the airline industry, and its long-term effects
on market structure and consumer welfare are still unknown. To predict these
effects{and, more broadly, to characterize the relationships between mergers, airline
profitability, and airport presence|this paper develops reduced form and structural
models of oligopoly entry in the airline industry. The models estimate a strong
positive relationship between airport presence and airline profitability that is robust
to changes in model specifications, suggesting that the consolidation of market
activity through a merger should deter other firms from entering a given market.
To quantify this effect in the context of the US{American merger, the models
were applied to market- and firm-level variables prior to the consolidation, holding
estimated parameters fixed. This analysis predicts that the average number of firms
serving a given market is significantly smaller with the merger than without it.
Furthermore, the merger should most heavily reduce the number of firms operating
in non-tourist, higher population, and shorter routes, as well as those operating in
markets with more incumbent airlines and airlines serving both endpoint airports.
Taken together, these results may inform the direction of merger regulation and
policy.