Policy Implications of the Effects of Concentration and Multimarket Contact in China’s Airline Market

Abstract

Unlike many other mergers in developed countries, which might have been assessed and their effects estimated by antitrust authorities before being granted antitrust immunity, the airline mergers that swept China's airline industry in 2002 occurred with no antitrust challenge. These mergers provide the opportunity to study important market power issues in China's airline markets. Given that increased concentration and multimarket contact are the main legacies of an airline merger, the effects of mergers on these variables can raise the potential for the exercise of market power. However, an examination of the period [2002][2003][2004] during which the Chinese airline mergers occurred shows that the resulting increased concentration and enhanced multimarket contact did not have important consequences for airfares in Chinese city-pair markets. The presence of Hainan Airlines appears to have played an important role in suppressing the airfares charged by China Eastern and China Southern.

Rivalry and Forbearance in the European Airline Industry: Evidence of an Inverted U-Shaped Competitive Pattern1

“…Further research with a wider scope would be required in order to draw such conclusions. Comparing our results with previous empirical work on non-European airlines such as Baum and Korn (1996;1999), Gimeno andWoo, (1996), Miller (2010), Prince and Simon (2009), Zhang and Round (2009), Bilotkach, (2011) and Singal (1996 naturally raises difficult obstacles. Indeed, beyond the fact that only Baum and Korn (1999) and our study theorized and tested a curvilinear relationship between multimarket contact and rivalry in the airline industry, other obstacles to generalization relate primarily to (1) the choice of time periods studied and differences in institutional environments, (2) stages in the competitive life cycle (3), maturity of strategic groups (4) differences in propensities to enter into alliances and (5) Competition for timeslots.…”

“…delays, etc.). In contrast, Zhang and Round (2009) Adapted from Chen (1996, p.108) multimarket contact on rivalry are observable in the context of industries other than the airlines, such as the US newspaper industry (Fu, 2003), the pharmaceutical industry (Guedri & McGuire, 2011) and the insurance industry (Greve, 2008).…”

The Shanghai–Beijing “Air Express” Service Model and its Impact on the Pricing Behaviour of Airlines

“…Specification 1 shows that China Eastern and Air China charged significantly higher prices (about 5%) than Shanghai Airlines while China Southern and Hainan Airlines charged much lower airfares (by 7.1% and 8.4% respectively). Zhang and Round (2009) reported the aggressive pricing strategy used by Hainan Airlines to expand its domestic networks. Similar strategy might have been used here to establish reputation in this relatively new market.…”

“…This is because most explicit and implicit price collusive agreements do not last long, as observed by Zhang and Round (2009). They found that many price-fixing agreements were actually very vulnerable and could be easily upset by a change in outside conditions such as demand.…”

“…However, all these airlines were publicly listed companies and so had to compete against each other for their own interests. In fact, they had done so in the past on many domestic routes, and cutthroat competition, or price wars, were not uncommon (Zhang & Round, 2009). It is interesting to find out how these airlines priced on the Shanghai-Beijing route, especially how the prices varied across airlines before and after the introduction of the "Air Express" service.…”