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Review of Industrial Organization
Published in: Review of Industrial Organization 1/2023

20-08-2022

What can be Expected from Mergers After Deregulation? The Case of the Long-Distance Bus Industry in France

Authors: Thierry Blayac, Patrice Bougette

Published in: Review of Industrial Organization | Issue 1/2023

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Abstract

This study estimates the competitive effects of horizontal mergers in the French long-distance bus industry. We examine the two mergers that followed the 2015 Deregulation Act (the Macron Law); we use an exclusive and exhaustive dataset that covers eight consecutive quarters. We analyze the merger effects by comparing bus links that were affected by mergers with those that were unaffected; we use difference-in-differences estimations. We find that the two mergers are associated with price increases of about 13.5% immediately that then moderate to 5.3%; and with the frequency decreases from − 21.5 to − 25.7%; we observe no effects on load factors. These findings show evidence of short-run anticompetitive effects, while the mergers under study were not scrutinized by the French competition agency, as they were below the notification thresholds.
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Footnotes
1
The law No. 2015-990 of August 6, 2015 for growth, activity and equal economic opportunity, known as the Macron Law, aims at benefitting French consumers by strengthening competition in many economic sectors.
 
2
For a theoretical survey of the above tradeoff, see Whinston (2006). See also the 2018 special issue of this journal edited by Stephen Martin dedicated to the 50th anniversary of the publication of Williamson (1968).
 
3
In other words, the analysis is focused on the links wherein merging firms were already active before the acquisitions.
 
4
The transport regulator was renamed “ART” in October 2019. Its former acronym was “ARAFER,” Autorité de régulation des activités ferroviaires et routières.
 
5
Unlike most of these studies that rely on data from the 10% airline ticket sample, our analysis uses exhaustive data that have been collected by the ART. The data collection procedure is rigid and enshrined in the Macron Law (see Sect. 4.1 for more details). Our data are exhaustive but more aggregated—at the segment level and on a quarterly basis—than the studies that are generally derived from the 10% ticket sample.
 
6
They analyze two important mergers involving European low-cost carriers: EasyJet’s acquisition of Go Fly in 2002 and Ryanair’s acquisition of Buzz in 2003.
 
7
The operator FlixBus acquired MeinFernBus (2015) and Postbus (2016). Both acquisitions were below the notification threshold, thus they were not reviewed by the German competition authority.
 
8
There are similarities in the effects of such liberalization between Germany and Italy; the differences are caused by industrial, geographical, and historical factors (see Grimaldi et al. (2017)).
 
9
Empirical evidence has been found with respect to the effect of liberalization in the rail industry. The UK, Norway, and Sweden were among the first to open their rail industries to competition in Europe. See Nilsson et al. (2013) for the Swedish case.
 
10
The culminating point was the Dautry Committee with the decree of April 19, 1934, which blocked the development of road transport by bus (administrative authorizations, public service obligations) and amounted to a rescue of the rail mode, while leaving aside the customers’ interests.
 
11
Regulation (EC) No 1073/2009 of the European Parliament and of the Council of 21 October 2009 on common rules for access to the international market for coach and bus services, and amending Regulation (EC) No 561/2006.
 
12
See Fig. 1 for the key events in the deregulation of the French intercity bus industry. Blayac and Bougette (2017) provide further details and identify some of the pricing strategies that were used.
 
13
By “long-distance services,” we mean links of over 100 km. Below this threshold, the ART verifies the absence of any negative repercussions on transport options provided by local authorities, such as regional express rail services.
 
14
Transdev was owned by the Caisse des Dépôts group and Véolia. In October 2018, Rethmann—a German industrial group—acquired Véolia’s stake in Transdev (33%).
 
15
In November 2018, the leading EU carpooling operator Blablacar announced its intention to acquire Ouibus. Blablacar entered the intercity bus market via a new fundraising campaign (“BlaBlaCar rachète Ouibus à la SNCF,” Les Échos, Nov. 12, 2018).
 
16
More precisely, FlixMobility GmbH is the parent company of mobility platforms FlixBus and FlixTrain. Ownership positions include equity firms such as the General Atlantic, Silver Lake, TCV, Permira, and HV Holtzbrinck Ventures. For further information on the group’s strategy, see “How FlixBus conquered the European coach market”, The Economist, May 10, 2018.
 
17
Ibid.
 
18
The Megabus Europe business comprises both retailing activities and coach operating activities. “We have agreed to the sale to FlixBus of the retailing part of that business. We will continue to operate a number of European inter-city coach services as a contractor to FlixBus, and we look forward to building on our relationship with it.” (Stagecoach Group, news release, June 29, 2016).
 
19
The integration of the Eurolines-Isilines brands by FlixBus has been effective since May 1, 2019, while that of Ouibus into BlaBlaBus has been effective since July 1, 2019 (ARAFER, 2019a). The following period was marked by a quasi interruption of bus services as a result of the COVID-19 pandemic.
 
21
INSEE is the French National Institute of Statistics and Economic Studies.
 
22
Some bus operators implement yield management systems and use price discrimination techniques, but these behaviors cannot be captured by the quarterly data-collection process.
 
23
Although the reduction in the number of observations and links may seem drastic, the 257 links studied represent more than 90% of the passengers transported during the three quarters before the mergers.
 
24
More information about these variables is provided in Table 2.
 
25
CGDD stands for Commissariat général au développement durable. Set up in 2008 within the Ministry of Ecological Transition, the General Commission for Sustainable Development (CGDD) informs and contributes to the Ministry’s actions in all of its areas of competence by producing data and insights.
 
26
In contrast to transversal links.
 
27
For more details about these variables, see Table 2. Data are from 2016.
 
28
For a discussion on which approach to use for retrospective merger studies, see the EC report by Ormosi et al. (2015). Both methods can be applied to the same case. See also Peters (2006).
 
29
See the online appendix detailing the links included in the treatment group as well as the links in the control group. http://​www.​gredeg.​cnrs.​fr/​research/​blayac_​bougette_​online_​material.​pdf
 
30
We tried to account for this by introducing a correction factor in terms of frequency and passengers carried for the links that were operated by FlixBus. However, this method was not sufficiently convincing to be retained: It leads to strategic reactions from the rivals, especially in terms of prices being ignored. It would be legitimate to assume that considering the strategic response of other suppliers would probably result in a decrease in the average price in the treatment group for Q4-2015.
 
31
Specifically, Mariuzzo and Ormosi (2019) show that using pooled models can lead to erroneous conclusions about post-merger effects. They recommend using unpooled models for a period of at least two years after the merger.
 
32
As was mentioned above, one needs to use the exponential to compute the dependent variable change that is related to a dummy variable.
 
33
“Market value” and “customer value” are terms that are inherited from the introduction of yield management techniques in France into the pricing strategies of transportation companies. “Market value” refers to the concept that each link exhibits specific characteristics (different economic potential of cities, more or less strong intermodal competition, etc.) and that posted prices cannot be solely based on the strict application of a mileage scale. This leads to what we call different market values depending on the city-pairs. “Customer value” refers to the fact that a customer’s willingness to pay may vary depending on the reason for travel, departure time, travel time, and the mode of transport considered.
 
34
Indeed, the long-distance bus services that were allowed by the Macron Law give the less wealthy customers greater opportunity to travel long distances. Initially, within the framework of the Macron Law, the expected consumption benefits for French consumers amounted to about €6 billion, all measures combined.
 
35
Note that ENTRY-POST does not appear significant for any model.
 
36
Bus drivers must take a break of at least 45 minutes every four and a half hours on the road, and must not work more than 10 hours per day.
 
37
Despite its leading position in 2016, the Isilines-Eurolines group lacked the critical mass that is required to continue this consumer business. For this reason, Transdev decided to exit this activity to refocus the group’s activities and prepare for the French rail sector’s opening up to competition.
 
38
In 2021, FlixBus had about 80 percent share of the German intercity bus market. See “Munich-Based Startup FlixMobility Ready for Train and Bus Resurgence in Europe,” Skift, May 5, 2021).
 
39
In May 2021, FlixTrain services were launched abroad in Sweden connecting Gothenburg and Stockholm. See “FlixTrain to launch new routes and night trains,” Railway Gazette, May 11, 2021.
 
40
“SNCF: de nouveaux trains à petits prix,” FranceInfo, Sep. 24, 2021.
 
41
“BlaBlaBus: Fresh competition for FlixBus takes to the road in Germany,” The Local.de, June 26, 2019.
 
42
“BlaBlaCar raises $115 million to build all-in-one travel app,” Techcrunch, April 20, 2021.
 
43
“Le roi du covoiturage BlaBlaCar va vendre des billets de train ” Le Figaro, April 20, 2021.
 
44
Yves Lefranc-Morin, General Manager of FlixBus France, said “We are still too much in this market to make it profitable. It is a volume business, you have to reach a significant size to make our costs profitable,’ (“Mauvais karma pour les cars Macron,” Libération, September 6, 2018).
 
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Metadata
Title
What can be Expected from Mergers After Deregulation? The Case of the Long-Distance Bus Industry in France
Authors
Thierry Blayac
Patrice Bougette
Publication date
20-08-2022
Publisher
Springer US
Published in
Review of Industrial Organization / Issue 1/2023
Print ISSN: 0889-938X
Electronic ISSN: 1573-7160
DOI
https://doi.org/10.1007/s11151-022-09878-7

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