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 and analysis of market power � � Consolidation trend in the airline sector trend in the airline sector Consolidation � � Merger control by competition authorities by competition authorities Merger control � � Analysis of market power post market power post- -merger merger Analysis of � � Detect competition concerns ( where? which?) where? which?) Detect competition concerns ( � � Measure them ( dominance dominance ) ) Measure them ( � � Solve them ( remedies Solve them ( 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?

The key questions of the paper Recent crucial crucial issues issues for for merger merger control in the control in the aviation aviation sector sector: : Recent 1) Are Are supply- -side side effects increasingly important in the 1) supply effects increasingly important in the assessment of market power in the airline industry? assessment of market power in the airline industry? � � How to take them into account appropriately? How to take them into account appropriately? 2) When supply When supply- -side concerns arise in limiting competition side concerns arise in limiting competition 2) between airlines, are there suitable and effective remedies to between airlines, are there suitable and effective remedies to restore competition conditions? ? restore competition conditions 3) In order to be In order to be effective effective, can remedies be not strictly route , can remedies be not strictly route- - 3) related? related? � � effectiveness vs. vs. consistency consistency ( (proportionality proportionality) ) effectiveness

The general framework The scope for for competition competition policy policy in in liberalized liberalized industries industries: : The scope � � antitrust control represents the main form of public intervention represents the main form of public intervention antitrust control left left � � To preserve the contestability of the markets preserve the contestability of the markets in the light of the in the light of the To current regulation, by assuring that liberalized markets remain current regulation, by assuring that liberalized markets remain accessible for competitors and that and that consumers can fully take consumers can fully take accessible for competitors advantage of liberalization benefits of liberalization benefits advantage � � the degree of competition left competition left is the best guarantee for the is the best guarantee for the “ “pass pass- - the degree of on” on ” to the consumers to the consumers

The background � � 2 recent recent cases cases 2 � � Alitalia/Volare /Volare, 2006 ( , 2006 (Italian Italian Competition Competition Authority Authority) ) Alitalia � � Ryanair/ /Aer Aer Lingus Lingus, 2007 (EU , 2007 (EU Commission Commission) ) Ryanair

The “traditional” analysis 1) Relevant Market Relevant Market 1) � � O/D approach – O/D approach – Catchment area (Demand) Catchment area (Demand) 2) Competitive Assessment 2) 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) Likely Remedies Likely Remedies 3) � � Slot release on single O&D markets Slot release on single O&D markets � � ) (frequency freeze and FFP ) (frequency freeze and FFP Limits: market power market power (analysis) and (analysis) and effectiveness of the measures effectiveness of the measures Limits: (remedies) (remedies)

Supply-side concerns in antitrust analysis Supply- -side substitutability generally refers to the possibility for side substitutability generally refers to the possibility for Supply competitors to effectively react to a price increase on a given to effectively react to a price increase on a given competitors route with competitive strategies on that route (e.g. shifting on that route (e.g. shifting route with competitive strategies capacity/resources deployed on other routes) capacity/resources deployed on other routes) The bundle of routes bundle of routes offered from an airport and the offered from an airport and the efficiency efficiency The 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 effects and market definition Towards a market definition as a “ “bundle bundle” ” of all flights of all flights from or to an from or to an Towards a market definition as a airport, in contrast in contrast with a demand with a demand- -side approach? side approach? airport, Less radical approach: Less radical approach: Demand- -side side remains remains the starting point for the definition of relevant the starting point for the definition of relevant Demand markets markets � � the effects of supply- -side substitutability cannot be regarded as side substitutability cannot be regarded as the effects of supply equivalent to those of demand substitutability in terms of effectiveness tiveness equivalent to those of demand substitutability in terms of effec and immediacy and immediacy BUT BUT Single “ “O&D O&D” ” markets markets are not entirely independent are not entirely independent from each other; from each other; Single Supply- -side substitutability and other forms of potential competition side substitutability and other forms of potential competition Supply have to be taken into account taken into account within the competitive within the competitive have to be assessment of the merger (analysis of market power of the assessment of the merger ( analysis of market power of the merging entity) merging entity)

Alitalia/Volare case The merger creates a dominant position dominant position on those routes on those routes where where The merger creates a Alitalia's capacity could never be matched capacity could never be matched by actual or potential by actual or potential Alitalia's competitors; competitors; Focus on Milano Milano Linate Linate, where , where congestion congestion and and regulation regulation impede impede Focus on the entry of new operators and heavily and heavily condition the activities condition the activities the entry of new operators 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 on single markets has been followed in the design of the on single markets has been followed in the design of the remedies ( (route specific route specific); ); remedies 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 of 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)