An Event Study of the US Airways-American Airlines Merger

Abstract

The recent merger between US Airways and American Airlines was approved by federal and state antitrust authorities, after the merging parties agreed to divest slots and gates at certain “constrained” airports to low cost carriers. By analyzing the stock-market returns of rival airlines, we find some evidence that stock market investors anticipated anticompetitive effects from this merger. The economics literature offers many reasons why such stock-market event studies should not be used to infer competitive effects from mergers. For example, abnormal returns for rivals might arise for reasons unrelated to competitive harms, such as when a merger changes expectations that one or more rivals will be “in play” (i.e., a potential future acquisition target). However, we argue that, for certain cases and conditions, event studies can inform a competition analysis, and that the US Airways – American merger might well be one such case.