The Influence of Airline Alliances on the Effects of Horizontal mergers in the Airline Industry

A horizontal merger involves at least two competing firms, who chose to bundle their forces into one firm. On the other hand there are alliances, which are institutional norms in which firms collaborate but remain separate entities. This bachelor thesis focused on the effects on consumer welfare of merging firms in the airline industry. Therefore multiple settings were used to assess whether there is a difference between profitability of: Alliance forming, and merging with respect to consumer welfare. Based on a reduced form of a Cournot quantity model, the main conclusion of this thesis is:alliances are most beneficial for consumers. However the European comission should increase the level of investigations around alliance forming. They should do so in order to make sure firms do not use alliance forming to avoid investigation when their actual goal is to merge. On the other hand research on the optimal level of alliance size, scale, and scope to maximize competition is too limited yet.