Airline Routes are Declining

The Wall Street Journal has a good article on the decline in the number of routes (flights)  here in the US from different sized airports.  Suffice it to say that smaller airports have had bigger drops in the number of departures than larger airports.  Declining demand, increasing costs have lead to increased consolidation leading to higher prices.

Antitrust and Airline Merger

The Wall Street Journal reported last year that the US government (i.e. the Justice Department) moved to block a proposed airline merger between US Airways and American Airlines on the grounds that the merger would hurt consumers (increase prices and reduce consumer welfare).

Sears-Kmart Horizontal Merger

An interesting New York Times article on the difficulties at Sears after the horizontal merger with Kmart.

Smithfield and Chinese Demand for Pork

The New York Times has a good article on the implications of Shuanghui (Chinese firm) purchasing Smithfield (US firm).  While many are concerned about China exporting pork to the US (in terms of food safety), this merger seems to be more about the increased demand for pork in China.  How as a seller of pork do you meet demand if you do not have the supply (or expect the marginal cost of increasing supply to be greater than other alternatives)?  Purchase other suppliers; which seems the most logical economic explanation for this horizontal merger.

Entry Via Horizontal Merger

The New York Times reports that SoftBank is purchasing a majority share of Sprint Nextel in order to enter the US cellphone communications market.

Delta-Northwest Merger

The NY Times has a nice piece on the details of merging two organizations - here on the merger of two US airlines.

Here is a link to a picture of how those operations needed to be merged.

AT&T and T-Mobile Merger Rejected

The New York Times has a short article on the FCC report as to why the AT&T and T-mobile merger was contested by the US government.

AT&T Ends T-Mobile Merger Bid

AT&T ends its attempt to merge with T-Mobile after opposition from the US government. This is one of the functions of the Dept. of Justice's Antitrust Division and the FTC's Antitrust Division. They evaluate the pro-competitiveness of horizontal (same product market) mergers and determine if they are likely to benefit consumers.

Local TV Mergers on the Rise

The New York Times reports that there has been an increase in the number of mergers for local TV stations. Part of the reason is due to political advertising revenues, but to me the bigger economic driver is re-transmission rights - revenues gained to local TV stations of transmitting their content on cable and satellite television services.

Video Game Mergers

Why are video game producers merging? Check out this article on the merger and some insight as to why they are taking place.

Airline Merger & the Horizontal Merger Paradox?

British Airways and Iberia recently announced they were merging. According to the article, the main benefits of the merger were costs synergies - specifically overhead or fixed costs synergies. One of the counter-intuitive results from the Cournot model revolves around something called the horizontal merger paradox. The horizontal merger paradox states that if firms in the same industry merge, and the merger is not a merger to monopoly - in other words after the merger there are still firms competing in the market - that the post-merged profits of the combined firms are less than the pre-merged firms profits.

One of the resolutions to the horizontal merger paradox is that the merged firm can be more profitable if it can lower its fixed costs by merging. This is what BA and Iberia are claiming they are going to do. The problem is that firms seem to over-estimate the fixed cost synergies, and thus we see some evidence that the post-merger profits are less than anticipated.

I wish to be clear, I am not saying that this is a profit-reducing merger. All I am saying is that this merger seems like a good example of the horizontal merger paradox.