Do Horizontal Mergers Affect Vertical Relationships Between Firms?

Abstract: We empirically investigate the effect of recent horizontal mergers between major U.S. airlines on the vertical relationships that these airlines have with their regional airline partners. Regional airlines operate flights as subcontractors for major airlines under the major’s brand, while majors are responsible for pricing, marketing, and sales. We study whether the number and scope of the relationships between majors and regionals change after two majors merge with each other. We also investigate whether these changes lead to route entry and exit.