This paper empirically analyses the impact of government ownership on competition in monopoly and duopoly markets. We use the European Airline Industry as a laboratory. In our empirical strategy we exploit two sources of exogenous variations that allow us to cleanly filter out the effect of government ownership on the likelihood of exit. First, we study government ownership that was triggered by a shock. More precisely, we use the COVID-19 pandemic as an exogeneous shock to the airline industry. Second, we employ quasi-randomness in reaction of governments to the shock due to cultural inherence. We find that government ownership is linked with a lower exit probability in monopoly and duopoly markets. Whereas in monopoly markets both legacy carrier and low cost carriers (LCC), in duopoly only government-owned low cost carriers are linked with a lower exit probability. There is some indication that privately-owned low cost carriers might be pushed out of duopoly routes by government-owned airlines.
(joint work with Jo Seldeslachts, Albert Banal-Estanol, Wolfgang Grimme, Sven Maertens)