Gecas and the Ge/Honeywell Merger: A Response to Reynolds and Ordover

Antitrust Division Economic Analysis Group Discussion Paper No. 03-13

40 Pages Posted: 23 Oct 2003

Date Written: August 2003

Abstract

The European Commission blocked the proposed 2001 merger of General Electric and Honeywell in part because of fears about the past and future effect on competition of GE's aircraft leasing arm, GECAS. It argued that in the past GECAS had skewed aircraft engine sales toward GE in a way that harmed competition, and that a post-merger GECAS would have brought about an even greater foreclosure in Honeywell's aircraft systems markets. A recent article by Reynolds and Ordover (2002) articulates in more detail a theoretical and empirical basis for this prediction. It estimates GECAS's past engine impact, and details theoretical steps that lead to a GECAS-based rationale for blocking the merger. This paper shows that the Reynolds and Ordover empirical analysis of GECAS' past impact is flawed, and that a better estimate yields at most a shift of 1.5% of large commercial aircraft engine sales toward GE after GECAS' arrival. It argues that this small engine share shift does not translate into past or future anticompetitive effects in any market and that Reynolds and Ordover's model, which does predict such an outcome, rests on flawed assumptions.

Keywords: Antitrust, vertical integration, tying, industrial organization

JEL Classification: K0, L1, L4

Suggested Citation

Emch, Eric, Gecas and the Ge/Honeywell Merger: A Response to Reynolds and Ordover (August 2003). Antitrust Division Economic Analysis Group Discussion Paper No. 03-13. Available at SSRN: https://ssrn.com/abstract=451961 or http://dx.doi.org/10.2139/ssrn.451961

Eric Emch (Contact Author)

U.S. Department of Justice ( email )

600 E Street NW
Antitrust Division: Economic Analysis Group Suite 10-119
Washington, DC 20530
United States

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