Using Policy Functions to Estimate Merger Impacts: An Application to JetBlue-Spirit

Gautam Gowrisankaran, Christopher D. Bruegge and Alex Gross

No 35787, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Analyses of impacts of potential mergers in differentiated product markets often rely on non-transparent identification and strong conduct assumptions. We propose a simpler alternative: using quasi-exogenous variation in market structure to estimate equilibrium pricing policy functions. When price can appropriately capture consumer welfare, this methodology may require fewer assumptions than a structural equilibrium approach, including allowing variation in conduct. We apply this methodology to the JetBlue–Spirit merger, estimating policy functions using entry events. Our counterfactual price simulations account for changes in JetBlue’s capacity and Sprit’s elimination. The merger would cause $2.6 billion in annual harm under our preferred specification.

JEL-codes: L13 L41 L93 (search for similar items in EconPapers)
Date: 2026-09
Note: IO CH
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