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THE PRICE EFFECT OF ELIMINATING POTENTIAL COMPETITION: EVIDENCE FROM AN AIRLINE MERGER *
Author(s) -
KWOKA JOHN,
SHUMILKINA EVGENIA
Publication year - 2010
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2010.00433.x
Subject(s) - competitor analysis , competition (biology) , market power , industrial organization , business , low cost carrier , market share , economics , microeconomics , monetary economics , marketing , monopoly , biology , ecology
This paper analyzes the gain in pricing power that a firm achieves by merging with a potential competitor in its market. Using pricing data for the merger of USAir and Piedmont, empirical analysis finds that prices rose by 5.0 to 6.0 per cent on routes that one carrier served and the other was a potential entrant. This was more than half the increase on routes where the two carriers had been direct competitors. Other important factors included carrier size, market concentration, incumbent's identity and the potential entrant's presence at one or both endpoints.