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Cost functions and determinants of unit cost effects in horizontal airline M&As

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  • Gudmundsson, Sveinn Vidar
  • Merkert, Rico
  • Redondi, Renato

Abstract

This paper analyses the unit cost effects of mergers and acquisitions (M&As) using linear, quadratic, and translog cost functions. In addition to a basic unit cost model we specify separate models for distress, profit, relative size, and cost difference, among the merging firms. We use a sample of 19 horizontal M&As in the international airline industry and data spanning from 1980 to 2012. Our models show that M&As do not affect unit costs in a significant way, unless the relative size difference of the merging firms is large, in which case we detect an increase in unit costs.

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  • Gudmundsson, Sveinn Vidar & Merkert, Rico & Redondi, Renato, 2017. "Cost functions and determinants of unit cost effects in horizontal airline M&As," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 444-454.
    • Handle: RePEc:eee:transa:v:103:y:2017:i:c:p:444-454
    DOI: 10.1016/j.tra.2017.05.025
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    Cited by:

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    4. de Oliveira, Renan P. & Oliveira, Alessandro V.M., 2021. "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, Elsevier, vol. 92(C).
    5. Yan, Jia & Fu, Xiaowen & Oum, Tae Hoon & Wang, Kun, 2019. "Airline horizontal mergers and productivity: Empirical evidence from a quasi-natural experiment in China," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 358-376.

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