Airline merger and competition in Japan: A conduct parameter and theoretical price approach

In 2003, Japan Airlines and Japan Air System merged to become an equal rival to All Nippon Airways, which had significant market power in the domestic air transportation market in Japan. This paper examines the merger effects on the competition structure of the air transportation market using conduct parameter and theoretical price approaches. We test to see if the merger changed the market structure because there had been a leader–follower relationship among three carriers before the merger, and we had an equal competitor relationship between two carriers after the merger.

Research highlights► Estimating the total cost function of airlines in Japan in transcendental logistic form. ► Using conduct parameters, it is found that the merger between Japan Airlines and Japan Air System generated genuine competition with All Nippon Airways on domestic air transportation market in Japan. ► Deploying theoretical prices, there are indications that a leader–follower relationship among three carriers before the merger was replaced by an equal competitor relationship between two carriers after.