ESSAYS ON INDUSTRIAL ORGANIZATION
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This dissertation covers two topics within the context of the U.S. airline mergers. In Chapter 1, I develop a structural model to evaluate the effectiveness of alternative slot divestiture schemes in the US airline industry, focusing on the divestiture of slots at Ronald Reagan Washington National Airport (DCA), which the government required as a condition of the American/US Airways merger. Departing from the existing literature, my model accounts for how the number of slots allocated to a route segment affects carrier costs, how passengers going to many different destinations may use the same segments, and how carriers choose to allocate slots to segments. In Chapter 2, I use counterfactuals to show that slot divestitures can result in the re-allocation of surplus between consumers; to estimate the proportion of slots that the merged American would have needed to divest to maximize total welfare; and, to evaluate the effects of allocating divested slots to different types of carriers. I find that the proposed divestiture raised consumer surplus significantly ($112M per year) compared to approving the merger without divestiture, but that it re-allocated surplus between consumers in different markets. I also find that the policy of only allowing the slots to be divested to low-cost carriers raised consumer surplus relative to the policy of only allowing the slots to be divested to legacy carriers. In Chapter 3, my coauthors and I develop an airline route competition entry model in which carriers first choose whether to offer nonstop or connecting service and then choose prices. In this setting carriers’ quality and cost unobservables are known to every player throughout the game, so that carriers can self-select into choosing nonstop service. Accounting for selection when performing counterfactuals affects predictions about post-merger repositioning by rivals, likely price increases and the effectiveness of remedies, and allows the model to match observed changes after completed mergers.