Research

Structural Remedies in Network Industries: An Assessment of Slot Divestitures in the American Airlines/US Airways Merger (Job Market Paper)

Asset divestitures are often negotiated to alleviate anticompetitive concerns created by horizontal mergers. I develop a structural model to evaluate the effectiveness of alternative slot divestiture schemes in the US airline industry, focusing on the divestiture of slots at Ronald Reagan Washington National Airport (DCA), which the government required as a condition of the American/US Airways merger. Departing from the existing literature, my model accounts for how the number of slots allocated to a route segment affects carrier costs, how passengers going to many different destinations may use the same segments, and how carriers choose to allocate slots to segments. I use counterfactuals to show that slot divestitures can result in the re-allocation of surplus between consumers; to estimate the proportion of slots that the merged American would have needed to divest to maximize total welfare; and, to evaluate the effects of allocating divested slots to different types of carriers. I find that the proposed divestiture raised consumer surplus significantly ($112M per year) compared to approving the merger without divestiture, but that it re-allocated surplus between consumers in different markets. I also find that the policy of only allowing the slots to be divested to low-cost carriers raised consumer surplus relative to the policy of only allowing the slots to be divested to legacy carriers.

Repositioning and Market Power After Airline Mergers [PDF]

(with Sophia Li, Joe Mazur, James Roberts, Andrew Sweeting, and Jun Zhang, winner of the Robert F. Lanzillotti Prize for the Best Paper in Antitrust Economics 2018 in International Industrial Organization Conference)

We estimate a model of airline route competition in which carriers first choose whether to offer nonstop or connecting service and then choose prices. Carriers have full information about quality and marginal cost unobservables throughout the game, so that carriers choosing nonstop service will be selected. Accounting for selection when performing counterfactuals affects predictions about post-merger repositioning by rivals, likely price increases and the effectiveness of remedies, and allows the model to match observed changes after completed mergers.

The Impact of Airline Mergers on Environmental Externalities, August 2019, Transportation Research Record [Link]

The U.S. airline industry has experienced consolidation in the last decade. At the same time, global environmental concerns have continued to grow. This paper examines the impact of three recent airline mergers on the environment by comparing per-departure NOx emission and the total NOx emission from merging firms at a given airport versus those emitted by non-merging firms at the same airport, by focusing on emissions from airplane flight landing/take-off cycles. The regression results suggest that mergers overall have no impact on either per-departure NOx emissions or total NOx emissions, while some individual mergers resulted in decreased emissions. However, this study finds that mergers have a negative impact on NOx emissions in the medium term when flight destinations are hub airports and a positive impact on NOX emissions in the medium term when flight destinations are non-hub airports.