Airline mergers and competition: An integration of stock and product price effects

While research using stock prices has rejected the hypothesis that market power is important in motivating horizontal mergers, studies of airfares find evidence consistent with a dominant role of market power in airline mergers. I integrate the two lines of research by examining the same set of airline mergers from a capital market viewpoint. Further, I link changes in the stock market to changes in the product market, presenting a dual market perspective. I conclude that airline mergers result in both increased market power and more efficient operations, The article has implications for antitrust policy.