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I explore the implications of oligopoly price discrimination for merger analysis
and policy in the context of the passenger air travel market. I test a theoretical
model of airline pricing on a database of prices offered by Australian and New
Zealand carriers at the time two of these were applying to, in effect, merge. The
results are that (1) no significant restriction of total output is required for the exercise of market power, and (2) competition with a low-cost carrier for the low
willingness-to-pay leisure traveler market exerts little discipline on the pricing of
airfares for infra-marginal customers.
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