Dynamic efficiencies of the 1997 Boeing‐McDonnell Douglas merger

Abstract

We evaluate the welfare effects of the 1997 Boeing‐McDonnell Douglas merger in the medium‐sized, wide‐body aircraft industry. We find that the merger led to lower prices. To explain the price drop, we develop a dynamic oligopoly game with learning‐by‐doing. We quantify the welfare effects of the merger by incorporating both increased market power and merger efficiencies from accelerated learning‐by‐doing. Our dynamic analysis indicates that net consumer surplus increased by as much as $5.14 billion, whereas a static model ignoring efficiencies of learning‐by‐doing predicts a $0.92 billion loss.