To better understand the impacts of market concentration and reduced competition on consumers in the airline industry, this paper investigates the effects of Alaska Airlines’ 2016 merger with Virgin America on airfares and quantities of passengers. I use highly disaggregated route- and firm-level data to conduct an event study and a difference-in-differences analysis with two-way fixed effects. The identification strategy compares routes where Alaska and Virgin had both competed prior to the merger (overlapping routes) to routes where only one had operated in order
to estimate the effects of reduced competition. I find that prices did not change significantly after the merger but increased sharply by an estimated $40.96 after Alaska eliminated Virgin from the market in 2018. I attribute this result to reduced competition, because load factor, a proxy for efficiency, does not vary systematically between overlapping and non-overlapping routes after the merger.
