MANY holidaymakers will be expecting cheap air fares this summer. The plummet in oil prices has meant that jet fuel, which account for nearly a third of the industry’s costs, is 35% cheaper than it was a year ago. But whether these savings get passed on will depend on how competitive the market is. By conventional measures, the industry looks highly contested: profit margins are historically slim and the number of carriers—more than 140 in America alone—is large.
But a new paper by Jose Azar, Martin Schmalz and Isabel Tecu argues that trustbusters now need to look in a new direction: at concentrated ownership. If, for instance, a mutual fund owns shares in two rival companies in the same industry, it would not be in their best interest as shareholders to encourage them to act in a competitive way. The boss of Delta Airlines might propose a price war to win boost his business. But would a mutual-fund manager who also owned shares in United Airlines be supportive? And would company managements be as keen to cut prices and fight for market share if they knew that their...Continue reading
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