Germán Bet

I document the evolution of market power in the U.S. airline industry for the period 1990:Q1-2019:Q4. I recover estimates of markups, defined as the ratio of price to marginal cost, at the airline-time level. Dominant carriers in the industry have substantially increased their markups in the last decade. The findings indicate an increase in market power: The increase in markups is not explained by proportionally higher fixed costs or a larger scale elasticity. In contrast, the net profit rate has dramatically increased for these carriers. I rely on these markup estimates and structural modeling to test if this recent increase in markups can be explained by a change in airlines’ conduct (coordinating behavior). The model rejects the null hypothesis of no increase in coordinating behavior for dominant carriers. Counterfactual simulations imply that the consumer surplus is, on average, 17% lower than it would have been under no change in conduct, and that prices are 10% higher.

A Retrospective Study of Recent U.S. Airline Mergers: What Can We Learn from Production Data?

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Abstract

I assess the effect of recent U.S. airline mergers on productive efficiency and market power. I recover productivity, markup, and marginal cost estimates for each airline using production and cost data. I then employ these estimates, a panel event study design, and synthetic control methods to estimate the effects of mergers on these outcomes. I find that in most cases, mergers have not significantly affected merging parties’ productive efficiency, and in a few cases, have increased marginal costs. Some mergers, such as the American-US Airways merger, have substantially increased the markups charged. The increase in markups is not explained by efficiencies, proportionally higher fixed costs, or changes in technology (i.e., a larger scale elasticity). Instead, the net profit rate has increased for these carriers after the mergers. Indirect evidence suggests that quality effects cannot account fully for the observed markup changes. Taken together, these findings point to an increase in market power.

Work in Progress

Productivity and Reallocation in the U.S. Airline Industry

Teaching

Empirical Industrial Organization

Game Theory & Industrial Organization

Industrial Organization

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