Bridging Retrospective and Prospective Merger Analyses: The Case of US Airline Mergers

2025-03-20

AI Summary

This paper addresses the methodological disconnect between retrospective and prospective analyses in airline merger evaluation by developing an integrated framework that unifies both approaches. Methodologically, it innovatively embeds event-study analysis within the reduced form of a structural model to disentangle efficiency gains from collusive or coordinated conduct; it further proposes a causal regression approach that predicts counterfactual prices using pre-merger data only. Empirically, the analysis of three major U.S. airline mergers reveals modest efficiency improvements—often fully offset by post-merger coordination. The framework substantially enhances the causal rigor, robustness, and policy relevance of merger effect estimation, offering a generalizable methodological advancement for antitrust assessment.

Technology Category

• Search and Optimization: Evaluation and Analysis
• Game Theory and Economic Paradigms: Coordination and Collaboration
• Machine Learning: Evaluation and Analysis

Application Category

• Search and Retrieval-Augmented AI: Web evaluation methodologies and metrics
• Web Mining and Content Analysis: Bridging structured and unstructured data
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs

Abstract

We propose an ensemble approach to evaluate mergers that combines retrospective and prospective modeling for a more reliable analysis. We begin with a retrospective analysis based on an event study of three major U.S. airline mergers and document the fragility of the findings. We then develop a structural model that nests the event study in its reduced form, clarifying the implicit assumptions in retrospective analyses that create this fragility while separating efficiency gains from changes in firms' conduct. Using only the pre-merger data, we develop a regression-based approach that leverages exogenous changes in market structure to forecast prices after the merger. Finally, we implement structural merger analysis and show how estimates from all approaches can be synthesized for comprehensive evaluation. This methodological integration uncovers a fundamental tension: merger-induced efficiency gains were limited or, if significant, offset by increased coordination among remaining firms.

Problem

• Evaluate airline mergers using retrospective and prospective modeling
• Address fragility in merger analysis findings via structural modeling
• Synthesize multiple approaches for comprehensive merger evaluation

Innovation

• Ensemble approach combining retrospective and prospective modeling
• Structural model nesting event study for implicit assumptions
• Regression-based forecasting using pre-merger market structure changes