Cost Functions and Determinants of Unit Cost Effects in Horizontal Airline M&As

Forthcoming, Transportation Research A

37 Pages Posted: 16 Feb 2017

See all articles by Sveinn Vidar Gudmundsson

Sveinn Vidar Gudmundsson

Toulouse Business School

Rico Merkert

The University of Sydney

Renato Redondi

University of Brescia - Department of Industrial Engineering

Date Written: January 1, 2017

Abstract

This paper analyses the unit cost effects of mergers and acquisitions (M&As) using linear, quadratic, and translog cost functions. In addition to a basic unit cost model we specify separate models for distress, profit, relative size, and cost difference, among the merging firms. We use a sample of 19 horizontal M&As in the international airline industry and data spanning from 1980-2012. Our models show that M&As do not affect unit costs in a significant way, unless the relative size difference of the merging firms is large, in which case we detect an increase in unit costs.

Keywords: Unit cost effects, M&A, mergers,airlines, cost functions, horizontal mergers

JEL Classification: L1, L4, L93

Suggested Citation

Gudmundsson, Sveinn Vidar and Merkert, Rico and Redondi, Renato, Cost Functions and Determinants of Unit Cost Effects in Horizontal Airline M&As (January 1, 2017). Forthcoming, Transportation Research A. Available at SSRN: https://ssrn.com/abstract=2918879 or http://dx.doi.org/10.2139/ssrn.2918879

Sveinn Vidar Gudmundsson (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

HOME PAGE: http://www.tbs-education.fr

Rico Merkert

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Renato Redondi

University of Brescia - Department of Industrial Engineering ( email )

Via Branze, 38
Brescia, 25123
Italy

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