A Refutation of 'Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry'

19 Pages Posted: 27 Jul 2022 Last revised: 19 Aug 2022

See all articles by José Azar

José Azar

University of Navarra, IESE Business School; CEPR; ECGI

Martin C. Schmalz

CEPR; University of Oxford - Finance; CESifo; European Corporate Governance Institute (ECGI)

Isabel Tecu

Charles River Associates (CRA)

Date Written: July 12, 2022

Abstract

We show that the main claim in Dennis, Gerardi, and Schenone (JF forthcoming) (DGS), namely "that the documented positive correlation between common ownership and ticket prices stems from the market share component of the common ownership measure, and not the ownership and control components," is factually incorrect. In particular, we show empirically that the placebo that according to DGS "keeps market shares fixed" is in fact highly negatively correlated with market shares. This correlation is mechanical and arises because the data set is an unbalanced panel, as we show analytically. We make a methodological contribution to the literature by showing how one can actually separate variation from market shares from variation in ownership. Contrary to DGS' claims, ownership changes do predict price changes once one constructs a valid placebo that actually separates the variation from market shares from the variation in ownership. AST's panel regressions in fact underestimated the price effect of common ownership, due to the endogeneity of market shares.

Keywords: Competition, Ownership, Diversification, Pricing, Antitrust, Governance, Product Market

JEL Classification: L41, L10, G30, G34, G32, G38

Suggested Citation

Azar, José and Schmalz, Martin C. and Schmalz, Martin C. and Tecu, Isabel, A Refutation of 'Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry' (July 12, 2022). European Corporate Governance Institute – Finance Working Paper No. 837/2022, Available at SSRN: https://ssrn.com/abstract=4158149 or http://dx.doi.org/10.2139/ssrn.4158149

José Azar

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

CEPR ( email )

London
United Kingdom

HOME PAGE: http://https://sites.google.com/site/joseazar/

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Martin C. Schmalz (Contact Author)

CEPR ( email )

London
United Kingdom

University of Oxford - Finance ( email )

United States

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Isabel Tecu

Charles River Associates (CRA) ( email )

1201 F. St. NW
Ste. 700
Washington, DC 20004
United States

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