Multimarket Contact and Mergers and Acquisitions: The Cases of Southwest Airlines and Airtran Airways in the US Airline Industry
Many studies have empirically shown that multimarket contact (MMC) has collusive effects in the US airline industry. The US airline industry has recently undergone large changes. For example, some airlines have implemented mergers and acquisitions (M&A), while Low-cost carriers (LCCs) have matured over time and developed according to multiple business models. Few previous empirical studies of MMC have taken these changes into account. Thus, this paper analyzes the impact of M&A on the effects of MMC while taking into consideration the presence of LCCs. We focus on Southwest’s “acquisition of Airtran Airways and estimate the simultaneous demand and price equations using unbalanced panel data for the fourth quarters of 2009, 2010, 2011, 2012, 2013 and 2014. We madethree findings. First, MMC has collusive effects on airlines’ pricing in the US airline industry. Second, the effect of MMC on Southwest Airlines’ pricing did not increase after the acquisition of Airtran Airways. Third, Southwest Airlines’ rivals may show more collusive effects of MMC after an acquisition is made by Southwest Airlines.
