Network of interconnected cities with airplanes and price tags, symbolizing airline pricing.

Airline Secrets: How Mergers and Multimarket Contact Affect Ticket Prices

Lena Kashyap in Business & Economy December 2025 • 4 min read.

"Dive into the hidden world of airline pricing strategies. Discover how mergers and extensive networks impact the fares you pay, and what it means for your travel budget."

The airline industry, a complex web of routes, fares, and competition, often leaves travelers scratching their heads about pricing. Why does a ticket cost so much one day and so little the next? The answer lies in a combination of factors, including airline mergers and the concept of 'multimarket contact,' where airlines compete on numerous routes simultaneously.

Collusion, both explicit and tacit, is a central issue in this industry. While direct collusion is illegal, airlines can subtly coordinate pricing through various means. Two prominent factors influencing this are multimarket contact and airline mergers. Extensive research has been conducted into both, particularly since a wave of mergers consolidated the U.S. airline market in recent decades.

This article breaks down the latest research into how multimarket contact and mergers affect airline ticket prices. We'll explore the strategies airlines use, the impact on competition, and what it all means for your travel budget. Understanding these dynamics can empower you to make smarter choices and potentially save money on your next flight.

Decoding Multimarket Contact: How Airlines Subtly Coordinate Prices

Network of interconnected cities with airplanes and price tags, symbolizing airline pricing.

Multimarket contact occurs when the same airlines compete against each other on many different routes. The theory suggests that this repeated interaction can lead to tacit collusion. Instead of explicitly agreeing to fix prices, airlines may subtly coordinate to avoid aggressive price wars that could hurt profits across their entire network. Think of it as a silent understanding: 'I won't undercut you on this route if you don't undercut me on that one.'

Recent research confirms that multimarket contact significantly influences airline pricing. Studies show a clear correlation between extensive multimarket contact and reduced price differences between airlines. This suggests that when airlines compete on many routes, they are more likely to maintain similar, higher prices than when they only compete on a few routes.

Here’s how multimarket contact fosters tacit collusion:

Increased Interdependence: Airlines become more reliant on each other's pricing decisions across their network.
Reduced Incentive for Price Wars: Lowering prices on one route could trigger retaliation on others, making aggressive competition less appealing.
Facilitated Coordination: Repeated interaction makes it easier for airlines to signal their intentions and maintain stable pricing.

One key finding is that airlines tend to exhibit more collusive behavior on non-stop flights. This is likely because non-stop routes often have fewer competitors and cater to less price-sensitive travelers. Airlines are also more likely to achieve tacit collusion in markets approaching a duopoly, where only two major players dominate.

The Future of Airline Pricing: What to Expect

The dynamics of airline pricing are constantly evolving. As airlines continue to merge and expand their networks, the impact of multimarket contact and market power will likely intensify. Understanding these forces can help travelers anticipate price trends and make informed decisions. Keep an eye on market concentration, route competition, and airline strategies to navigate the ever-changing world of airline ticket pricing and potentially save money on your next trip.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2405.15825,

Title: Multimarket Contact, Merger, And Airline Collusion

Subject: econ.gn q-fin.ec

Authors: Ziyu Yan

Published: 23-05-2024

Everything You Need To Know

What is multimarket contact, and how does it influence airline ticket prices?

Multimarket contact describes a scenario where the same airlines compete against each other on numerous different routes. This repeated interaction facilitates tacit collusion, where airlines subtly coordinate pricing without explicit agreements. This can lead to reduced price differences between airlines as they avoid price wars across their network. This means you, as a traveler, could potentially pay more due to this subtle coordination to maintain higher prices.

How do airline mergers impact the cost of tickets, and why is this a concern?

Airline mergers contribute to market concentration, potentially reducing competition. As a result, the merged entities may have greater market power. This can lead to higher prices for consumers because fewer competitors mean less pressure to offer competitive fares. Mergers, coupled with multimarket contact, can create an environment where airlines are incentivized to maintain higher prices. The consolidation of the U.S. airline market is a prime example of how mergers can change the competitive landscape.

Can you explain the concept of tacit collusion in the context of the airline industry?

Tacit collusion refers to the subtle coordination of pricing strategies among airlines without any explicit agreements. It often arises due to multimarket contact, where airlines repeatedly encounter each other on many routes. Airlines understand that aggressive price wars on one route could trigger retaliation across their entire network. This understanding leads them to maintain similar prices, avoiding direct price competition and maintaining higher overall profits. This is different than explicit collusion, which is illegal, where airlines directly agree on pricing.

In what specific flight scenarios is tacit collusion most likely to occur, and why?

Tacit collusion is most likely to occur on non-stop flights and in markets approaching a duopoly. Non-stop flights often have fewer competitors and cater to travelers less sensitive to price. This reduced competition makes it easier for airlines to coordinate pricing without fear of a significant loss of market share. In markets with only two major airlines (duopoly), the incentive to collude is even stronger, as each airline's actions have a significant impact on the other's profits, making them even more likely to tacitly collude to maintain prices.

How can understanding multimarket contact and airline mergers empower travelers to make smarter choices when booking flights?

Understanding the dynamics of multimarket contact and airline mergers empowers travelers to anticipate price trends and make informed decisions. Travelers can keep an eye on market concentration and route competition. If you notice increased concentration due to mergers, or high multimarket contact, you might anticipate higher prices. This knowledge can help you compare prices across different airlines, consider connecting flights or alternative airports, and be more strategic about when you book your tickets to potentially save money. Being aware of these market forces gives you more control over your travel budget.