We introduce a new method for studying the medium and long run dynamic effects of mergers. Our method builds on the two-step estimator of Bajari, Benkard, and Levin (2007). Policy functions are estimated on historical pre-merger data, and then future industry outcomes are simulated both with and without the proposed merger. Using data for 2003-2007, we apply our model to some recently proposed airline mergers. In our airline entry model, an airline’s entry/exit decisions are made jointly across routes, and depend on features of its own route network as well as the networks of the other airlines. The model allows for city-specific profitability shocks that affect all routes out of a given city, as well as route-specific shocks. We find that the model fits the data extremely well. See paper for preliminary conclusions. Note: This is not a paper. It is the incomplete outline of a paper. Citations are very incomplete. Please do not quote findings. ∗This draft is a very rough first effort – not even really a paper yet. We thank Darin Lee and Severin Borenstein for several useful discussions.
