Market reaction to bidder announcements of horizontal mergers in an oligopolistic industry: evidence from the US airline industry

Mergers among US domiciled airlines have increased in recent years. These mergers are attempts by airlines to assuage operational and financial challenges and to obtain actual or ostensible benefits, including efficiency and market power gains, and improve competitive position. This study investigates the market reaction to merger announcements by bidder firms in the US airline industry, an oligopolistic industry, during the period 1985-2013. Results of the analysis show significant positive reaction to the announcements. The findings suggest that the market perceives these merger transactions as value-relevant events for bidders. In addition, the findings are consistent with the semi-strong form of the efficient market hypothesis.