A bright shining line? :The use of Cournot modelling in submissions to the Commerce Commission regarding the proposed alliance of Air New Zealand and Qantas

Abstract

This study reviews the use of Cournot related models presented to the New Zealand Commerce Commission in relation to the proposed merger of Qantas and Air New Zealand. A model of quantity competition on the Christchurch—Brisbane route is then developed, and three scenarios are considered, including the merger of the two full service airlines and the role of Air New Zealand's ownership of Freedom Air. Key features of this model are the use of product differentiation and conjectural variations, the latter enabling the modelling of markets which are more (or less) competitive than basic Cournot theory would suggest.