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THE IMPACT OF MERGERS ON FARES STRUCTURE: EVIDENCE FROM EUROPEAN LOW-COST AIRLINES

Authors

  • PAUL W. DOBSON,

    1. Dobson: Professor, Norwich Business School, University of East Anglia, Norwich NR4 7TJ, UK. Phone +44 (0)1603 597270, Fax +44 (0)1603 593343, E-mail p.w.dobson@gmail.com
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  • CLAUDIO A. PIGA

    1. Piga: Reader, School of Business and Economics, LoughboroughUniversity,LoughboroughLE113TU,UK.Phone +44 (0)1509 222755, Fax +44 (0)1509 222739, E-mail c.a.g.piga@Lboro.ac.uk; claudio.piga@gmail.com
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    • We are extremely grateful to Steve Davies, Maria Gil-Molto, Steve Thompson, Mike Walker, Mike Waterson, and an anonymous referee for their helpful comments and suggestions. We are also grateful for helpful comments and feedback received from participants at Centre for Competition and Regulatory Policy Research Workshop, Birmingham, July 2007; the Royal Economic Society Conference, Warwick, March 2008; and European Association for Research in Industrial Economics Conference, Toulouse, September 2008. C.A.P. gratefully acknowledges receipt of the British Academy Research Grants LRG-35378 and SG-45975.


Abstract

This paper examines mergers that lead to an almost immediate replacement of the target firm's business model in favor of that of the acquiring firm. We examine the post-merger behavior of the two leading European dedicated low-cost airlines, EasyJet and Ryanair, each acquiring another low-cost airline, Go Fly and Buzz, respectively. We find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of intertemporal price schedules used on the acquired routes, with early booking fares noticeably reduced and only very late booking fares increased. The analysis suggests that the takeovers had a net beneficial effect for consumers, at least in price terms, as a consequence of the introduction of the acquiring firms' business models and associated yield management pricing systems. (JEL L11, L13, L93)

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