Merger Forms and Welfare: Evidence from the U.S. Airline Industry

Abstract

Mergers change competitive situations in markets and affect consumers and rivals. We assume three cases as potential merger forms between two firms: (i) two firms (both brands) maintain their activity under a holding company; (ii) a firm maintains its own brand and the other is resorbed; or (iii) vice versa. What are the differences among the market results of these three cases? We examine that question using data from the U.S. airline industry (merger between Delta and Northwest) by simulation. Results show that firms expand their profits when they merge to either one. It is important for consumer surplus to maintain high quality and low cost products, and that the rival drops the price.