A merger with a maverick firm : examining the coordinated effects in the AA/USAir merger

This paper studies the coordinated effects of the merger between American Airlines and USAirways by examining the extent to which the connecting prices of the nonmerging legacy carriers(Delta and United) evolved when the merger eliminated Advantage Fares, a connecting flight pricediscounting program offered by US Airways. In our empirical analysis, we find that postmergernonmerging legacy carriers substantially increased their connecting flight prices on routes where US Airways had a dominant position, and a similar pattern can be found for the merging carriers onroutes where nonmerging legacy carriers had a dominant position. We next conduct a theoreticalanalysis in which we show that these empirical findings can be explained by the elimination ofmaverick firms and how such elimination facilitates coordinated conduct among legacy carriers.Finally, we note the potential importance of connecting services in merger analysis in the airlineindustry