An Analysis of the Effect of Airline Mergers on Airfares: A Case Study of Delta-Northwest and Continental-United

In this paper I analyze the effects of the mergers between Delta-Northwest and Continental-United on airfares. I use data from before the announcement of the mergers to model prices and then forecast what prices would have been after the mergers had the mergers not occurred. By comparing the actual observed fares and the predicted fares, I find that fares are lower than predicted during the periods of the mergers’ announcements and higher than predicted afterwards. Overall, fares after the announcement of the merger are higher than predicted, and market power effects from the merger dominate efficiency gains. However, I find that several variables do not have the effect on airfares that one would expect.