Abstract
Entrenched dominant firms and anticompetitive consummated mergers pose growing problems for antitrust agencies throughout the world. A lot of thought is being given as to how to address ...these situations but perhaps the most obvious idea—breaking up such firms—is generally dismissed as impractical, the equivalent of trying to unscramble eggs. We disagree. We show that there have been a substantial number of successful breakups of firms, some in antitrust, more in regulated industries, and even more in the private sectors of the USA and UK as firms initiate their own restructuring. We believe that a policy of breakups can have a much greater chance at success compared to efforts to regulate such firms through rule-making conduct remedies. And we argue that breaking up such firms is facilitated by the fault lines that reveal the natural break points of these heavily merged firms. We recommend that breakups be on the policy menu for competition agencies.
In recent decades, antitrust investigations and cases targeting mergers -- including those involving Google, Ticketmaster, and much of the domestic airline industry -- have reshaped industries and ...changed business practices profoundly. And yet there has been a relative dearth of detailed evaluations of the effects of mergers and the effectiveness of merger policy. In this book, John Kwoka, a noted authority on industrial organization, examines all reliable empirical studies of the effect of specific mergers and develops entirely new information about the policies and remedies of antitrust agencies regarding these mergers. Combined with data on outcomes, this policy information enables analysis of, and creates new insights into, mergers, merger policies, and the effectiveness of remedies in preventing anticompetitive outcomes.After an overview of mergers, merger policy, and a common approach to merger analysis, Kwoka offers a detailed analysis of the studied mergers, relevant policies, and chosen remedies. Kwoka finds, first and foremost, that most of the studied mergers resulted in competitive harm, usually in the form of higher product prices but also with respect to various non-price outcomes. Other important findings include the fact that joint ventures and code sharing arrangements do not result in such harm and that policies intended to remedy mergers -- especially conduct remedies -- are not generally effective in restraining price increases. The book's uniquely comprehensive analysis advances our understanding of merger decisions and policies, suggests policy improvements for competition agencies and remedies, and points the way to future research.
This paper analyzes the gain in pricing power that a firm achieves by merging with a potential competitor in its market. Using pricing data for the merger of USAir and Piedmont, empirical analysis ...finds that prices rose by 5.0 to 6.0 per cent on routes that one carrier served and the other was a potential entrant. This was more than half the increase on routes where the two carriers had been direct competitors. Other important factors included carrier size, market concentration, incumbent's identity and the potential entrant's presence at one or both endpoints.
Airlines Symposium Introduction Kwoka, John
Review of industrial organization,
02/2019, Letnik:
54, Številka:
1
Journal Article
Recenzirano
Airlines were not the first industry in the U.S. to undergo deregulation, but they were perhaps the largest and most visible demonstration of the potential for industries to transition from ...intensive, traditional regulation to a competitive setting. Economists and others who predicted benefits from deregulation were important forces in the movement that culminated 40 years ago with the Airline Deregulation Act of 1978. But few predicted some of the fundamental forces that would remake—and continually remake—the industry since that time.
Firms compete with each other in numerous ways, but particularly interesting are the various ways in which they respond to competitive threats to their critical assets and operations. Firms may mount ...vigorous defenses, or they may launch offensive strategies—by some definitions perhaps even predatory—or they may do nothing at all. This paper takes a selective empirical approach to analyzing such actions. We examine one industry—airlines—and two carriers—United and US Airways—and analyze their price and capacity strategies when confronted by entry on specific routes or by certain rivals. This approach limits exogenous variation while offering insights into the determinants of incumbents’ strategies, such as the identity of the entrant, the likely prospects for driving it out, the nature of airport or route competition, and so forth.
Low-cost carriers (LCCs) have transformed the US airline industry. They are now much larger and have moved into more direct competition with legacy carriers. This paper re-examines airline fare ...determination in this transformed industry. It finds that LCCs have a much larger fare impact than do legacies, but that their fare-reducing effect diminishes as they become dominant on a route. It also finds that legacy carriers primarily affect each others' prices, whereas LCCs have a significant impact on pricing by both other LCCs and legacies. These and other results suggest a new and more nuanced role for LCCs in the domestic airline industry.
This study examines the effects of airline baggage fees as a method for diverting high cost passengers to rival airlines that do not charge such fees. We show that the latter in turn must raise their ...fares, thereby weakening their competitive constraint on carriers with fees and permitting the latter actually to raise their fares. Our empirical evidence focuses on routes where legacy carriers with baggage fees compete with Southwest, which has never had such fees. Consistent with the above implications of the model, we find nontrivial cost and price increases for Southwest and corresponding nontrivial fare increases by legacy carriers on routes on which they overlap with Southwest. These results provide support for the theory of "raising rivals' costs", this in airlines, but common in other settings where unbundled pricing shifts customers between firms.
Predicting Merger Outcomes Kwoka, John; Gu, Chengyan
The Journal of law & economics,
08/2015, Letnik:
58, Številka:
3
Journal Article
Recenzirano
Merger analysis is an exercise in prediction. This paper analyzes the accuracy of two leading methods of predicting merger outcomes—stock market event studies and an approach using market structure ...criteria—as well as the accuracy of antitrust agencies’ decisions about challenging mergers. The basis for these evaluations is a database of price effects of 41 mergers compiled from published retrospective studies of mergers. This paper finds that event studies systematically underpredict the incidence of anticompetitive outcomes, while market structure criteria overpredict competitive problems. Agency decisions correct much of that overprediction, however, which suggests that structural criteria may serve as an appropriate first screen.
Merger control is an antitrust priority in the US and elsewhere, but its effectiveness has not been well established with the kind of empirical evidence developed, for example, with respect to cartel ...enforcement, much less the vast literature evaluating industry regulation and other public policies. The present study takes one modest step toward greater understanding of mergers and merger control. It does so by exploiting the growing body of economic literature that evaluates the actual effects of specific mergers. The author's method is essentially a meta-analysis: it synthesizes all available literature on the effects of individual mergers. Evaluating policy ultimately requires data and other information about the prior conditions in the industry, the theory or methodology employed by the reviewing agency, and any enforcement action taken by that agency for each of the mergers studied in the retrospectives. In an effort to address these issues, this study augments data on the fifty-three transactions examined in the retrospectives with information on prior conditions and agency actions for each.
This paper analyses the performance impact of the merger wave which took place in the US electricity industry during the period 1994–2003. It does so by analyzing the impact on operating and total ...cost in electricity distribution. While there are past studies of efficiency and productivity effects, as well as of prices, profits, and other outcomes, this study differs in several ways. First, the database consists of many merging and non-merging firms, rather than only a few on which to base inferences. Second, all of these mergers arise in a single industry, greatly facilitating controlled comparison. Third, we have data on the several years of pre-merger and post-merger efficiency of the specific merging units, unlike virtually all past studies. Finally, we employ a powerful nonparametric technique—data envelopment analysis—to measure the efficiency of each operating unit. The results indicate that electricity mergers are not consistent with improved cost performance.
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