Dissertation/Thesis Abstract

Impacts of Airline Mergers on Passenger Welfare
by Luo, Tian, M.S., Dartmouth College, 2016, 85; 10192903
Abstract (Summary)

Since 2005, U.S. domestic airline industry has undergone a series of consolidations. The overall effects of these consolidations on air travelers are of considerable interest to researchers and policy makers alike. In this thesis, unlike any of the previous studies in literature, we provide a comprehensive assessment of the overall effects of each of the five major recent mergers on the passengers’ welfare as evaluated through consumer surplus changes, starting with the US Airways – America West Airlines merger in 2005 and ending with the American Airlines – US Airways merger in 2013. We develop discrete choice models with fare, nonstop and one-stop service frequency, travel time, and other carrier and route attributes as parameters. The consumer surplus, as a function of these parameters, is calculated for each market as the measure of passengers’ welfare. By using the markets not affected by the mergers as a control group, we are able to separate out the welfare effects of mergers from those of other extrinsic factors such as oil price changes, changes in economic conditions, etc. Several new insights are obtained. We find that mergers of legacy network carriers with significant proportion of overlapping markets are generally accompanied by flight reallocation and network reorganization, which in turn, contribute to an increase in passenger welfare. However, overall passenger welfare for very small communities declined after the mergers. Also, overall passenger welfare in markets with many competitors declined, consistent with the classic economic theory of consolidation-induced welfare losses. We also find that the welfare gain from mergers of legacy network carriers with significant proportion of overlapping markets progressively decreased as the number of existing major domestic carriers decreased, and that after the most recent mergers, any further potential mergers of legacy network carriers are likely to result in welfare losses.

Indexing (document details)
Advisor: Vaze, Vikrant
Commitee: Borsuk, Mark, Shumsky, Robert
School: Dartmouth College
Department: Engineering
School Location: United States -- New Hampshire
Source: MAI 56/06M(E), Masters Abstracts International
Source Type: DISSERTATION
Subjects: Economics, Engineering, Operations research
Keywords: Airline merger, Consumer surplus, Consumer welfare, Difference in differences, Multinomial logit, Transportation economics
Publication Number: 10192903
ISBN: 978-0-355-15612-6
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