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European Airline Mergers, Alliance Consolidation, and Consumer Welfare

Author

Listed:
  • Jan K. Brueckner
  • Eric Pels
Abstract
This paper explores the effects of a European airline merger followed by a consolidation of two competing international alliances. The exercise has been inspired by the Air France-KLM merger, which is expected to spur consolidation of the Northwest-KLM and SkyTeam alliances into a single mega-alliance. The results of the analysis show that, although the airlines benefit through higher profits, the merger and alliance consolidation harm consumers while reducing overall social surplus. The reason for this negative outcome is that, as modeled, all the effects of the merger and alliance consolidation are anticompetitive.

Suggested Citation

  • Jan K. Brueckner & Eric Pels, 2004. "European Airline Mergers, Alliance Consolidation, and Consumer Welfare," CESifo Working Paper Series 1154, CESifo.
    • Handle: RePEc:ces:ceswps:_1154
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    References listed on IDEAS

    as
    1. Button, Kenneth & Oum, Tae Hoon, 1997. "Airline alliances and open skies transport," Journal of Air Transport Management, Elsevier, vol. 3(3), pages 107-107.
    2. Jan K. Brueckner, 2003. "International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 105-118, February.
    3. Brueckner, Jan K., 2003. "The benefits of codesharing and antitrust immunity for international passengers, with an application to the Star alliance," Journal of Air Transport Management, Elsevier, vol. 9(2), pages 83-89.
    4. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, vol. 83(3), pages 549-569, June.
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    7. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1475-1498, December.
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    Keywords

    european airline merger; airlines; airline alliance; transportation;
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