Identifying Merger Opportunities: The Case of Air Traffic Control

In “Identifying Merger Opportunities: The Case of Air Traffic Control,” N. Adler, O. Olesen, and N. Volta propose a model to identify an optimal horizontal merger configuration at the level of an industry or firm with multiple branches. Assuming that each firm operates within a catchment area or owns part of a network, we extend the model to consider feasible mergers that cover a contiguous area, should network effects be a consideration. An application to the European air traffic control system suggests that four contiguous air navigation service providers should replace the current 29 providers and the nine functional airspace blocks proposed in the Single European Skies initiative. The technological developments in air traffic management in which regulators on both sides of the Atlantic have invested heavily, namely SESAR and NextGen, are unlikely to be used without a concomitant reduction in operating costs through economies of scale. We find that the politically oriented solution may save around one third of current costs, but an optimal solution will save closer to 46%.