Consolidamento nel settore del trasporto aereo passeggeri: - - PowerPoint PPT Presentation

Consolidamento nel settore del trasporto aereo passeggeri: considerazioni in merito alla supply- side substitutability nell’analisi Antitrust

Marco Benacchio Autorità Garante della Concorrenza e del Mercato marco.benacchio@agcm.it SIET - Napoli, 3-5 ottobre 07

• Consolidation

Consolidation trend in the airline sector trend in the airline sector

• Merger control

Merger control by competition authorities by competition authorities

• Analysis of

Analysis of market power post market power post-

• merger

merger

• Detect competition concerns (

Detect competition concerns (where? which?) where? which?)

• Measure them (

Measure them (dominance dominance) )

• Solve them (

Solve them (remedies remedies) )

• Subject to jurisdictional control

Subject to jurisdictional control

• Formal consistency of the antitrust intervention

Formal consistency of the antitrust intervention

• The value of case law

The value of case law How to assess market power? How to assess market power? Which remedies when competition concerns? Which remedies when competition concerns?

Consolidation and analysis of market power

Recent Recent crucial crucial issues issues for for merger merger control in the control in the aviation aviation sector sector: : 1) 1) Are Are supply supply-

• side

effects side effects increasingly increasingly important important in the in the assessment of market power assessment of market power in the airline industry? in the airline industry?

• How to take them into account appropriately?

How to take them into account appropriately?

2) 2) When supply When supply-

• side concerns arise in limiting competition

side concerns arise in limiting competition between airlines, are there between airlines, are there suitable and effective remedies to suitable and effective remedies to restore competition conditions restore competition conditions? ? 3) 3) In order to be In order to be effective effective, can remedies be not strictly route , can remedies be not strictly route-

• related?

related?

• effectiveness

effectiveness vs.

• vs. consistency

consistency ( (proportionality proportionality) )

The key questions of the paper

The scope The scope for for competition competition policy policy in in liberalized liberalized industries industries: :

• antitrust control

antitrust control represents the main form of public intervention represents the main form of public intervention left left

• To

To preserve the contestability of the markets preserve the contestability of the markets in the light of the in the light of the current regulation, by assuring that current regulation, by assuring that liberalized markets remain liberalized markets remain accessible for competitors accessible for competitors and that and that consumers can fully take consumers can fully take advantage advantage of liberalization benefits

• f liberalization benefits
• the degree of

the degree of competition left competition left is the best guarantee for the is the best guarantee for the “ “pass pass-

• n
• n”

” to the consumers to the consumers

The general framework

• 2

2 recent recent cases cases

• Alitalia

Alitalia/Volare /Volare, 2006 ( , 2006 (Italian Italian Competition Competition Authority Authority) )

• Ryanair

Ryanair/ /Aer Aer Lingus Lingus, 2007 (EU , 2007 (EU Commission Commission) )

The background

1) 1) Relevant Market Relevant Market

• O/D approach

O/D approach – – Catchment area (Demand) Catchment area (Demand)

2) 2) Competitive Assessment Competitive Assessment

• Overlapping

Overlapping

• Market shares

Market shares

• passengers and frequencies

passengers and frequencies

• structural barriers to entry (slot shortage)

structural barriers to entry (slot shortage)

• Dominance on single O&D markets

Dominance on single O&D markets

3) 3) Likely Remedies Likely Remedies

• Slot release on single O&D markets

Slot release on single O&D markets

• (frequency freeze and FFP

(frequency freeze and FFP)

) Limits: Limits: market power market power (analysis) and (analysis) and effectiveness of the measures effectiveness of the measures (remedies) (remedies)

The “traditional” analysis

Supply Supply-

• side substitutability generally refers to the possibility for

side substitutability generally refers to the possibility for competitors competitors to effectively react to a price increase on a given to effectively react to a price increase on a given route with competitive strategies route with competitive strategies on that route (e.g. shifting

• n that route (e.g. shifting

capacity/resources deployed on other routes) capacity/resources deployed on other routes) The The bundle of routes bundle of routes offered from an airport and the

• ffered from an airport and the efficiency

efficiency gains exploited from operating a gains exploited from operating a “ “base airport base airport” ” could play an could play an important role in affecting actual and potential competition important role in affecting actual and potential competition from that airport from that airport

• the base allows realizing cost savings due to economies of scale

the base allows realizing cost savings due to economies of scale and scope and scope

• "

"competition effect competition effect“ “: the airline can react more easily and more : the airline can react more easily and more quickly to changes in supply and demand on routes to/from its quickly to changes in supply and demand on routes to/from its base base

Supply-side concerns in antitrust analysis

Towards a market definition as a Towards a market definition as a “ “bundle bundle” ” of all flights

• f all flights from or to an

from or to an airport, airport, in contrast in contrast with a demand with a demand-

• side approach?

side approach? Less radical approach: Less radical approach: Demand Demand-

• side

side remains remains the starting point for the definition of relevant the starting point for the definition of relevant markets markets

• the effects of supply

the effects of supply-

• side substitutability cannot be regarded as

side substitutability cannot be regarded as equivalent to those of demand substitutability in terms of effec equivalent to those of demand substitutability in terms of effectiveness tiveness and immediacy and immediacy

BUT BUT Single Single “ “O&D O&D” ” markets markets are not entirely independent are not entirely independent from each other; from each other; Supply Supply-

• side substitutability and other forms of potential competition

side substitutability and other forms of potential competition have to be have to be taken into account taken into account within the competitive within the competitive assessment of the merger ( assessment of the merger (analysis of market power of the analysis of market power of the merging entity) merging entity)

Supply-side effects and market definition

The merger creates a The merger creates a dominant position dominant position on those routes

• n those routes where

where Alitalia's Alitalia's capacity could never be matched capacity could never be matched by actual or potential by actual or potential competitors; competitors; Focus on Focus on Milano Milano Linate Linate, where , where congestion congestion and and regulation regulation impede impede the entry of new operators the entry of new operators and heavily and heavily condition the activities condition the activities and strategies of incumbents; and strategies of incumbents; The The “ “route by route route by route” ” approach and the assessment of dominance approach and the assessment of dominance

• n single markets has been followed in the design of the
• n single markets has been followed in the design of the

remedies remedies ( (route specific route specific); ); Why not to impose the release of the same number of slots Why not to impose the release of the same number of slots “ “irrespectively irrespectively” ” of the destination

• f the destination?

?

• Not consistent with the assessment of the dominance and raising

Not consistent with the assessment of the dominance and raising “ “distributive distributive” ” issues (likely reduction in the supply on the affected issues (likely reduction in the supply on the affected routes) routes)

Alitalia/Volare case

First antitrust evaluation of a merger between low cost carriers First antitrust evaluation of a merger between low cost carriers mainly operating from the same airport (Dublin) mainly operating from the same airport (Dublin) “ “Base competition Base competition” ” paradigm paradigm Actual competition Actual competition: constraints from carriers not based in Dublin : constraints from carriers not based in Dublin Potential competition Potential competition: barriers to entry to operate from Dublin : barriers to entry to operate from Dublin 4 different types of barriers have been highlighted: 4 different types of barriers have been highlighted: i) i) “ “structural structural” ”: shortage of slots to guarantee an effective entry : shortage of slots to guarantee an effective entry (both in quantitative and qualitative terms); (both in quantitative and qualitative terms); ii) ii) “ “structural structural” ”: the fixed costs necessary for establishing a : the fixed costs necessary for establishing a “ “base base” ”; ; iii) iii) “ “commercial commercial” ”: the value of a highly recognisable brand; : the value of a highly recognisable brand; iv) iv) “ “strategic strategic” ”: reputation of the incumbent as an aggressive player. : reputation of the incumbent as an aggressive player.

Ryanair/AerLingus case

Entry Entry evaluated as evaluated as not likely not likely and timely to constitute a sufficient and timely to constitute a sufficient competitive constraint and defeat the likely anti competitive constraint and defeat the likely anti-

• competitive

competitive effects of the merger effects of the merger Barriers Barriers go well beyond the problem of a congested airport and go well beyond the problem of a congested airport and refer to: refer to:

• Ryanair

Ryanair’ ’s s and and Aer Aer Lingus Lingus’ ’ well well established position established position at their home at their home base base

• Ryanair

Ryanair reputation reputation of aggressive retaliation against any entry by

• f aggressive retaliation against any entry by

competitors competitors

Ryanair Ryanair offered various remedies

• ffered various remedies
• Insufficient: the limited number of "slots" offered was

Insufficient: the limited number of "slots" offered was unlikely to unlikely to stimulate market entry of a firms big enough to replace the stimulate market entry of a firms big enough to replace the competitive pressure competitive pressure currently exercised by currently exercised by Aer Aer Lingus Lingus. .

• “

“Upfront buyer Upfront buyer” ”: buy the pool of slot : buy the pool of slot – – one single purchaser

• ne single purchaser

Ryanair/AerLingus case

• The main issue is the identification of efficient measures to

The main issue is the identification of efficient measures to restore competition; restore competition;

• Traditional remedies are

Traditional remedies are route route-

• specific

specific, since they modify , since they modify competition conditions competition conditions on each market;

• n each market;
• Appropriate remedies should

Appropriate remedies should incentive at least one competitor incentive at least one competitor to to

• perate from the
• perate from the “

“critical critical” ” airport airport on a scale that allows to exploit

• n a scale that allows to exploit

base economies base economies “ “comparable comparable” ” to those of the merging entities; to those of the merging entities;

• When the

When the “ “incentive incentive” ” is is not sufficient not sufficient (due to market conditions or (due to market conditions or the reputation of aggressive player of the dominant carrier), the reputation of aggressive player of the dominant carrier), the the remedy will not be sufficient to restore competition; remedy will not be sufficient to restore competition;

• this is true

this is true even if it allows to operate a number of slots and even if it allows to operate a number of slots and market share on single markets decreases market share on single markets decreases significantly. significantly.

What we learned

Type Type “ “2 2” ”-

• like error

like error (clearance of an anticompetitive merger / (clearance of an anticompetitive merger / uneffective uneffective remedies) remedies) – – the the “ “traditional traditional” ” analysis? analysis? Strictly route Strictly route-

• related remedies

related remedies risk to be risk to be ineffective ineffective, reducing the , reducing the likelihood of new entries and likelihood of new entries and make the discipline of potential make the discipline of potential competition competition much much weaker weaker and less effective and less effective

• Pluralism (entry on single routes) vs. competition

Pluralism (entry on single routes) vs. competition

Does it mean that market power is wrongly assessed through the Does it mean that market power is wrongly assessed through the traditional market definition? traditional market definition? What if What if the new entrant uses the available slots on routes the new entrant uses the available slots on routes different different from the overlap routes? from the overlap routes?

• Consistency

Consistency

Which future for merger control in aviation?

Type Type “ “1 1” ”-

• like error

like error (prohibition of a pro (prohibition of a pro-

• competitive merger /

competitive merger / remedies not proportional) remedies not proportional) – – the the “ “nouvelle vague nouvelle vague” ”? ? Un Un-

• remediable mergers (to be prohibited) due to market features

remediable mergers (to be prohibited) due to market features

• ther than
• ther than technical slot availability?

technical slot availability? Risk of Risk of overweighting market power

• verweighting market power due to the results of competition

due to the results of competition

• n the merits?
• n the merits?

In case of In case of remedies remedies: :

• What if the search of a

What if the search of a “ “more credible competitor more credible competitor” ” from the base from the base airport implies the airport implies the reduction of supply reduction of supply on a specific route?

• n a specific route?
• Is antitrust policy in charge of

Is antitrust policy in charge of distributive issues distributive issues? ?

• How to take the risk of a

How to take the risk of a “ “new new” ” market definition consistent with the market definition consistent with the effective remedies (i.e. effective remedies (i.e. the other way round the other way round) regardless of the ) regardless of the potentially static effects on specific routes for consumers? potentially static effects on specific routes for consumers?

Which future for merger control in aviation?