Effects of potential competition: the case of Gol-Webjet merger
DOI:
https://doi.org/10.1590/1980-53575435ffgrKeywords:
Potential competition, Concentration acts, Acquisitions, Airline industryAbstract
This paper analyzes price impacts resulting from removal of one potential competitor in Brazilian airline industry. Despite the relevance of this type of competitive pressure, competitive analysis focus more on effective competition, making potential competition still an underexplored topic in the empirical literature. Trying to fill this gap, the present study analyzes the impacts resulting from the acquisition of the Webjet company by Gol company, in 2012, with an investigation focus on potential competition. Before being acquired, Webjet played the role of Gol’s effective competitor in some routes, as well as Gol’s potential competitor in other routes. Thus, in this context, it was possible to compare the airfares before and after the operation in these routes and to estimate the impacts resulting from this potential competition removal. In this analysis was applied the difference in-differences method, using the Brazilian National Civil Aviation Agency’s (ANAC) airfare data from pre and post-operation periods. The results indicate price increases in these routes, from 7.68% to 16.42%, depending on the model used. These results show, therefore, the importance to consider potential competition effects in mergers and acquisitions assessments.
Downloads
References
Aghion, P.; Bolton, P. Contracts as a barrier to entry. The American Economic Review, American Economic Association, v. 77, n. 3, p. 388–401, 1987. ISSN 00028282.
Borenstein, S. Airline mergers, airport dominance, and market power. American Economic Review, v. 80, nº 2, p. 400–404, 1990.
Brueckner, J. K.; Lee, D.; Singer, E. S. Airline competition and domestic US airfares: A comprehensive reappraisal. Economics of Transportation, Elsevier BV, v. 2, n. 1, p. 1–17, mar. 2013.
Carlton, D.; Israel, M.; McSwain, I.; Olov, E. Are legacy airline mergers pro- or anti-competitive? Evidence from recent U.S. airline mergers. International Journal of Industrial Organization, v. 62, p. 58–95, 2019.
Castro, K. P. de; Salgado e Silva, L. H.; Marinho, A. Análise da fusão Azul-Trip sob a ótica dos ganhos de eficiência, Revista de Economia Contemporânea, v. 23, 2019.
Clark, J. B. (1904) The real dangers og thee trusts, 68 The Century Magazine 954.
Dixit, A. A model of duopoly suggesting a theory of entry barriers. Bell Journal of Economics, v. 10, n. 1, p. 20–32, 1979.
Dixit, A. The role of investment in entry-deterrence. Economic Journal, v. 90, n. 357, p. 95–106, 1980.
Fageda, X.; Perdiguero, J. An empirical analysis of a merger between a network and low-cost airlines. Journal of Transport Economics and Policy, v. 48, n. 1, p. 81–96, 2014.
Goolsbee, A.; Syverson, C. How do incumbents respond to the threat of entry? evidence from the major airlines. The Quarterly Journal of Economics, v. 123, n. 4, p. 1611–1633, 2008.
Hüschelrath, K.; Müller, K. Market power, efficiencies, and entry evidence from an airline merger. Managerial and Decision Economics, v. 36, n. 4, p. 239–255, 2015.
Kern, Benjamin R. Innovation Markets, Future Markets, or Potential Competition: How Should Competition Authorities Account for Innovation in Merger Review? World Competition: Law and Economics Review, v. 37, nº 2, p. 173-206, 2014.
Kim, E. H.; Singal, V. Mergers and market power: Evidence from the airline industry. American Economic Review, v. 83, nº 3, p. 549–69, 1993.
Klemperer, P. Entry deterrence in markets with consumer switching costs. Economic Journal, v. 97, n. 388a, p. 99–117, 1987.
Kwoka, John. Eliminating Potential Competition. In: Issues in Competition Law and Policy. Chicago: American Bar Association, v. 2, 2008.
Kwoka, John; Shumilkina, Evgenia. The price effect of eliminating potential competition: Evidence from an airline merger. Journal of Industrial Economics, v. 58, no. 4, p. 767–793, 2010.
Kwoka, John. Mergers, mergers control and remedies: a retrospective analysis of U.S. policy, 2015.
Kole, Stacey; Lehn, Kenneth M. Workforce Integration and the Dissipation of Value in Mergers, The Case of USAir’s Acquisition of Piedmont Aviation. Mergers and productivity. University of Chicago Press, p. 239-286, 2000.
Lima, L. de C. Exame dos efeitos ex-post das fusões entre a Gol-Webjet e Azul-Trip no setor de aviação brasileiro. Mestrado em Economia da Indústria e Tecnologia. Universidade Federal do Rio de Janeiro. 2020.
Luo, D. The price effects of the delta/northwest airline merger. Review of Industrial Organization, v. 44, n.1, p. 27–48, 2014.
Mackinnon, J. G.; White, H. Some heteroskedasticity consistent covariance matrix estimators with improved finite sample properties. Journal of Econometrics, 29, p. 305–325, 1985.
Meyer, Breed D. Natural and quasi-experiments in economics. Journal of business & economic statistics, v. 13, nº 2, p. 151-161, 1995.
Milgrom, P.; Roberts, J. Limit pricing and entry under incomplete information: An equilibrium analysis. Econometrica, [Wiley, Econometric Society], v. 50, n. 2, p. 443–459, 1982.
Morrison, S. A. Airline mergers: A longer view. Journal of Transport Economics and Policy, JSTOR, p. 237–250, 1996.
Morrison, S. A. Actual, adjacent, and potential competition estimating the full effect of southwest airlines. Journal of Transport Economics and Policy, v. 35, n. 2, p. 239–256, 2001.
OCDE. Reference guide on ex-post evaluation of competition agencies’ enforcement decisions. April, 2016. Disponível em: <http://oe.cd/J3>. Acesso em 12.11.2022.
OCDE. Relatórios de avaliação concorrencial da OCDE: Brasil. OECD Publishing, Paris. 2022. Disponível em: <https://doi.org/10.1787/283dc7c1-pt>. Acesso em 12.11.2022.
Oliveira, M. N. de. Concorrência Potencial: Teoria do Dano ou Futurologia? Direito da Concorrência, Consumo e Comércio Internacional, p. 21, 2017.
Oliveira, R. M. Impactos da adoção de faixas exclusivas de ônibus: uma análise do caso de São Paulo. Mestrado Acadêmico em Economia e Desenvolvimento. Universidade Federal De São Paulo. 2018.
Oliveira, R. da R. Como as empresas aéreas respondem à saída de um competidor potencial: o caso da Avianca Brasil. Tese de Doutorado. Universidade de São Paulo. 2021.
Oliveira, R. P. de; Oliveira, A. V. Financial distress, survival network design strategies, and airline pricing: An event study of a merger between a bankrupt fsc and an lcc in Brazil. Journal of Air Transport Management, v. 92, n. C, p. S0969699721000272, 2021.
Pimenta, M. M.; Da Costa Marques, J. A. V.; Rodrigues, A. Combinação de negócios: uma investigação sobre as recentes reestruturações no setor aéreo brasileiro. In: Anais do Congresso Brasileiro de Custos-ABC. 2014.
Severino, L. M.; Resende, G. M.; Bispo, F. C. Avaliação ex post de ato de concentração: o caso Sadia-Perdigão. Documento de Trabalho 003/2019. CADE – Conselho Administrativo de Defesa Econômica, 2019.
Severino, L. M.; Resende, G. M.; Lima, R. Ex post mergers evaluation: Evidence from the Brazilian airline industry. Documento de trabalho 003/2021. CADE – Conselho Administrativo de Defesa Econômica, 2021.
Shen, Y. Market competition and market price: Evidence from united/continental airline merger. Economics of Transportation, v. 10, n. C, p. 1–7, 2017.
Singal, V. Airline mergers and multimarket contact. Managerial and Decision Economics, Wiley Online Library, v. 17, n. 6, p. 559–574, 1996.
Spence, A. Entry, capacity, investment and oligopolistic pricing. Bell Journal of Economics, v. 8, n. 2, p. 534–544, 1977.
Spence, A. The learning curve and competition. Bell Journal of Economics, v. 12, n. 1, p. 49–70, 1981.
Werden, G. J.; Joskow, A. S.; Johnson, R. L. The effects of mergers on price and output: Two case studies from the airline industry. Managerial and Decision Economics, Wiley Online Library, v. 12, nº 5, p. 341–352, 1991.
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Fernando Daniel Franke, Guilherme Mendes Resende
This work is licensed under a Creative Commons Attribution 4.0 International License.
By submitting an article, the author authorizes its publication and attests that it has not been submitted to any other journal. The original article is considered final. Articles selected for publication are proofread for grammatical and orthographic errors. The journal does not pay rights for published articles. The Institute of Economic Research from the School of Economics, Business and Accounting of the University of São Paulo (Instituto de Pesquisas Econômicas da Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo) owns the journal's copyright.
