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    "Proposed" Merger between United Airlines and Continental

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    On May 3, 2010, United Airlines and Continental Airlines announced a definitive merger agreement that would create the world's largest airline. According to the Wall Street Journal, the combined company would be nearly 8% larger than Delta Air Lines (currently the world's largest airline) in traffic as measured by the number of miles flown by paying passengers world-wide. It would command 21% of seats in the U.S. market, versus Delta's 20%. If the merger is approved, it would leave American Airlines (15% of domestic market), Southwest Airlines (15%), and U.S. Airways (10%) as the only remaining large airlines with national flight networks although a number of smaller airlines serve most regional markets. The merger would give passengers of United and Continental access to many new destinations: United serves 100 cities that Continental doesn't, and Continental flies to 136 cities that United doesn't. Still, the merger is widely expected to enable the carriers to cut capacity -- the number of seats in the sky -- which could give the entire industry more leeway to raise fares. UBS Investment Research estimated that the two may cut their domestic capacity by as much as 10%, which would represent 2% of industry capacity and make it easier for airlines to try to push fares higher.

    As usual, and especially with transactions of this size, a major concern is whether the proposed deal will be approved by antitrust regulators. In 2008, the Bush administration's Justice Department speedily approved Delta's merger with Northwest, finding it pro-competition. However, the proposed United/Continental merger involves larger partners and the Obama administration has vowed to "reinvigorate" antitrust enforcement. In general, to determine the extent to which industry consolidation is likely to lead to higher, lower, or unchanged product selling prices, it is necessary to consider current competitors, potential competitors, the availability of substitutes, and customer price sensitivity. Based on these factors, explain whether or not the proposed merger should be approved by antitrust regulators.

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    Justice Department clears United, Continental merger for takeoff

    The Justice Department should green light the proposed combining of United Airlines and Continental Airlines on Friday. It appears that because of the merger taking place, there was not too much overlap in routes which would cause consumer harmed because of limited flight choices and more expensive flights. For example there would be enough ...

    Solution Summary

    An expert discusses and provides reasoning about why the "Proposed" Merger between United Airlines and Continental Airlines should not only be approved, but also how it is indeed, legal.