Protecting strategically vulnerable markets through inventory pooling: a by-product of coordinated effects induced by horizontal post-merger

Abstract

This empirical study explores the relationship between inventory fluctuations and coordinated effects induced by horizontal post-mergers in the service industry. Using US domestic airline industry, an industry that commits to a rigid inventory capacity and heavily relies on endogenous mobility barriers in competition, as an example, the investigation analyses 284,610 observations of real time longitudinal population data collected from service frequencies and price dispersions over the four identical periods of September 1 through 30, 2012, 2014, 2016 and 2017. The finding uncovers: 1) no evidence of expected inventory reduction or build-up after mergers; 2) the competition ecology is reshuffled and the stiff system of mobility barriers is facing a new challenge posed by rival strategic groups; 3) since no apparent market expansion is present after the occurrence of three mergers in the industry, rival groups diverted overlapped inventories to newly found strategically vulnerable markets. These results suggest endogenous mobility barriers may hinder the realisation of post-merger synergistic gains or neutralise difficulties of operational consolidation.