Airline Networks, Mergers, and Consumer Welfare

We study the consumer welfare effects of mergers in airline networks. Based on the development of a general classification of affected routes, we apply a difference-in-differences approach to exemplarily investigate the price effects of the America West Airlines–US Airways merger completed in 2005. We find that although average prices increased substantially on routes in which both airlines competed either on a non-stop or one-stop basis prior to the merger, substantial average price reductions observed for routes without any pre-merger overlap suggest that the merger led to a net increase in consumer welfare.