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

Chun-Yu Ho, Pat McCarthy and Yanhao Wang

Journal of Air Transport Management, 2021, vol. 91, issue C

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.

Keywords: Merger; Shareholder wealth; Countervailing power; Event study; Internationalization; Vertical supply chain (search for similar items in EconPapers)
JEL-codes: G14 L22 L41 L43 L93 L98 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaitra:v:91:y:2021:i:c:s096969972030572x

DOI: 10.1016/j.jairtraman.2020.101990

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