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Competition and countervailing power: Evidence from the China Eastern and Shanghai Airlines merger

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  • Ho, Chun-Yu
  • McCarthy, Patrick
  • Wang, Yanhao

Abstract

This paper examines the motives and effects behind the horizontal merger between China Eastern and Shanghai Airlines in 2009. We develop testable hypotheses, incorporating into a unified framework the two merging airlines, their domestic and international competitors, and relevant airports along the supply chain. We employ an event study methodology and show that domestic competitors gain whereas international competitors lose. Our results suggest that the sources of gain for the merging firms are market power in domestic markets and efficiency improvement in international markets. Further, as a hub for the merged airline, Shanghai Airport experienced positive abnormal returns. Our results do not support the hypothesis that the merged airline gains countervailing power towards airports. Our event study findings are robust to alternative estimation periods and samples, and are consistent with analyst forecasts and long-run operating performances.

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  • Ho, Chun-Yu & McCarthy, Patrick & Wang, Yanhao, 2021. "Competition and countervailing power: Evidence from the China Eastern and Shanghai Airlines merger," Journal of Air Transport Management, Elsevier, vol. 91(C).
  • Handle: RePEc:eee:jaitra:v:91:y:2021:i:c:s096969972030572x
    DOI: 10.1016/j.jairtraman.2020.101990
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    Cited by:

    1. Yaghoub Abdi & Xiaoni Li & Xavier Càmara-Turull, 2023. "Firm value in the airline industry: perspectives on the impact of sustainability and Covid-19," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-24, December.

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    More about this item

    Keywords

    Merger; Shareholder wealth; Countervailing power; Event study; Internationalization; Vertical supply chain;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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