Supramonopoly: Theory and Evidence from the US Air Passenger Service Markets

A supramonopoly is the market structure of a homogeneous good that is priced higher than the monopoly level. We present evidence of supramonopoly in the US air passenger service. For four airline mergers during the period of 1993 to 2009, we identify routes that dropped fares for no other reason than the increase in market power due to merger. Therefore each of those routes had fare higher than the monopoly level before the merger to monopoly. We explain supramonopoly as the result of a cartel with strongly punitive matching rules. We also discuss the striking implications for antitrust and regulatory policies.