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Mergers and product quality: Evidence from the airline industry

Yongmin Chen () and Philip Gayle ()

International Journal of Industrial Organization, 2019, vol. 62, issue C, 96-135

Abstract: Retrospective studies of horizontal mergers have focused on their price effects, leaving the important question of how mergers affect product quality largely unanswered. This paper empirically investigates this issue for two recent airline mergers. Consistent with the theory that mergers facilitate coordination but diminish competitive pressure for quality improvement, we find that each merger is associated with a quality decrease (increase) in markets where the merging firms had (had no) pre-merger competition with each other, and the quality change can have a U-shaped relationship with pre-merger competition intensity. Consumer gains/losses associated with quality changes, which we monetize, are substantial.

Keywords: Mergers; Product quality; Airlines (search for similar items in EconPapers)
JEL-codes: L13 L40 L93 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Mergers and Product Quality: Evidence from the Airline Industry (2013) Downloads
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DOI: 10.1016/j.ijindorg.2018.02.006

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