The watchdog had received complaints over high ticket prices and had been looking into the matter with a view to decide whether to instigate a full investigation.
Air Berlin collapsed in October last year, leaving Lufthansa with a monopoly on some German domestic routes for a few months.
The cartel office said that Lufthansa tickets were on average 25-30 percent more expensive after the insolvency but fell again after easyJet entered the market following the acquisition of parts of Air Berlin.
"The price increase is significant, but does not justify the instigation of market abuse proceedings," cartel office president Andreas Mundt said in a statement.
A Lufthansa spokesman said the company acknowledged the decision, declining to comment further.
(Reporting by Victoria Bryan; Editing by Christoph Steitz)