Airline Horizontal Mergers and Productivity: Empirical Evidence from a Natural Experiment in China

Abstract

The identification of possible efficiency gains is a core issue in the analysis of mergers. However, empirical studies are generally subject to bias caused by merger endogeneity. In the early 2000s, the Chinese government pursued a strategy of merging small firms in key industries to create large enterprise groups. Mergers created by this policy provide a rare natural experiment to investigate the effect of mergers. We take the opportunity to apply the difference-in-differences approach to identify the effect of mergers on the efficiency of Chinese airlines. Overall, our analysis suggests that the mergers increased the productivity of Chinese airlines.