The media's education of the public on antitrust laws through the lens of the Microsoft proceedings has been remarkably incomplete. Plus, it was my understanding that you were discussing airline mergers. Microsoft's most prominent merger, that with Intuit, was rejected on competition concerns. Concerns over anticompetitive behavior involve different sections of the Sherman and Clayton Acts than do mergers. But hey, I don't use a Mac so what do I know? Your original statement was that deregulation was accompanied by a lessened antitrust standard for combinations in the airline sector is a point I reject categorically, largely because there is no empirical evidence to support such a claim. It is true that I know of no mergers rejected by federal regulators in this sector. However, as you well know, association does not prove causality; that is, simply because mergers were approved does not mean that they were not subjected to the same scrutiny as in any other industry. (Though, I'm sure, you would argue that antitrust has basically been a non-starter over the past two decades. The good folks at DOJ and FTC would most certainly disagree.) Perhaps the most quoted line in American antitrust jurisprudence is that antitrust laws "protect competition, not competitors." As such, regulators focus on the impact a merger will have on consumers, not on competitors, making a firm's potential to dominate a market the primary concern in any merger analysis. Antitrust laws, however, are not seen as a way to protect competitors from mergers that will make the merged firm more efficient, as competition is seen as the best way to promote efficiency. Lawrence Summers put it this way: the "goal is efficiency, not competition. The ultimate goal is that there be efficiency." Ruinous competition for the sake of competition benefits no one. A recent Supreme Court decision is illustrative: "The purpose of the [Sherman] Act is not to protect business from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself." This language goes a long way in explaining the underlying rationale of American antitrust law. That rationale has been consistently and uniformly applied since the publication of the DOJ's Merger Guidelines in 1983. Your main concern seems to be with changes that have occurred in aviation in the years since deregulation; namely, the growth in the hub-and-spoke system and a shift toward regional aircraft. I doubt seriously that even regulation would have prevented the rise of regional jets (which, as you will recall, were largely unknown prior to 1990). Even your 54 passengers on a 717 (a 50% seat-fill rate) does not present an especially attractive route option, especially when it can be operated with a 50 or 70 seat regional jet (with a 108% or 77% seat-fill rate). Nor can it be said that regulation would not have resulted in a similar hub system to the one we have now. People complain about hubs, but the efficiencies are undeniable and there is absolutely no evidence that they damage the underlying health of an airline. I think the crux of your argument is that you would rather see a world populated by smaller carriers limping along on government handouts. In short, a world of many airlines (though probably limited choice in individual markets), but also a world of airlines with relatively shaky financial foundations. In contrast, I have great faith in the market's ability to sort out the winners from the losers. After all, if Northwest is in such an enviable position in its core cities as a result of the Republic merger, shouldn't it be more than barely profitable? -----Original Message----- From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf Of kurtzke@xxxxxx Sent: Thursday, December 11, 2003 7:30 PM To: AIRLINE@xxxxxxxxxxxxxxxxx Subject: Re: Deregulation & Anti-trust Laws Douglas & List, Deregulation did not *cause* suspension of enforcement of anti-trust laws. However, the approach to anti-trust enforcement was radically different in the Reagan administration than in the Carter (and Nixon and ...) administration. We also went through a "big is good" period in the 70's, only to find that big was inefficient; yet we are back to it again. Maybe our banks are too small ( the mergers seem to be the Revenge of the Rust Belt :-) ), but my guess is that we will have to break up Standard Oil again. I find your second sentence curious, given the rather lame (IMHO) defense of Microsoft that "the consumer has not been hurt," which tacitly admitted that Microsoft had illegally (IMHO) run roughshod over its competition. But back to airlines: The merger of Republic and Northwest eliminated any competition in the major hub cities of Minneapolis and Detroit -- go through Minneapolis and count how many gates NW has. There have been other questionable airline mergers, but I don't think any airline merger beats the NW - RE one. Yes, this was reviewed, but a top accounting firm gave Enron a clean bill of health too. One could posit that monopolies have the potential to be more efficient than competition; therefore, DOJ should promote monopolies, but anti-trust legislation arose from the harmful effects monopolies had on consumers. The subsidy given carriers before deregulation was the mail subsidy -- (over?)payment for carrying the mail. I don't know if such a subsidy still exists, but airlines still carry mail and they don't do it for nothing. The main feature of regulation was that the game was fixed so that a reasonably run airline would make money -- bankruptcy was still possible. Under regulation, airlines were able to petition the CAB to cut or drop service from cities unable to support it -- did such routes receive greater subsidies than merited? I don't know. Take the 3 flights of 18 passengers on a 737 into a small city that you raise as a straw man -- merge them to one flight on a 717 of 54 passengers and you have a passenger load that is not that bad. I take the approach that public transportation, whether by car, bus, train, or plane, is a public good and needs to be treated as such. That does not mean that every airline must fly into every Middlesex village and farm, but that some amount of regulation is needed. Doesn't this mean most people will have to pay more? Probably, but that's life. But think about this: Is it really in anyone's long term interest to have air fares less than costs? Of the major airlines, is any one really healthy? Did the disappearance of TWA really matter? I can't say exactly what I would want regulation to be, but I am no fan of the current system. I am certainly not saying that every pair of cities should have point-to-point service -- in the South Bend example I cited, you could fly to O'Hare, Detroit, Cleveland, or Fort Wayne and that was it (the trip to Cleveland had a stop in Fort Wayne.) There is a curious example at Cornell which older folks there could tell you about and I'm likely to get wrong. There is overcrowding at O'Hare, LaGuardia (sp?), and San Francisco. In addition, you get huge messes at other airports as well in bad weather which ripples through the system because of hub systems. Further, you have airlines screaming to fly into Washington National Airport where bad piloting a la Air Florida (to say nothing of terrorists) can easily take a jet into the Pentagon, the Lincoln Memorial, the Kennedy Center, Georgetown Library, etc. If it is not the government's job to say who flies what where and when, then what are we paying them for? <somewhat tongue in cheek> john On Thursday, December 11, 2003, at 11:21 AM, Douglas Schnell wrote: > I remain unclear on how deregulation resulted in a suspension of > antitrust laws in the aviation sector. > > When the DOJ and FTC examine a merger--any merger--they look at the > impact of the merger on competition in the market, not the impact on > consumers. To the extent a merger makes a market more efficient, the > merger should be (and almost always is) approved. In this country, > we've gone through a painful experience with the "big is bad" school > of thought. The capstone was the Supreme Court's 1960s decision to > block a grocery store merger in California that would have increased > market share of the combined company from 5% to 7.5%. It is an > undeniable fact that consumers benefit from a company that can take > advantage of economies of scale. > > As economic analysis has come to play an increasingly important role > in antitrust enforcement, competition authorities have (thankfully) > given up on deciding on mergers based on gut feeling and shifted to > making decisions based on sound economic evidence. At no time were > any of the post-deregulation aviation mergers exempted from antitrust > review, just as none of the oil and bank mergers you mentioned were > somehow given a free pass. (The banking sector is, incidentally, an > especially poor example of an industry where consolidation might be a > negative outcome. Even today, the US has many more banks, by several > orders of magnitude, than any other industrialized country. There is > persuasive evidence that this is actually a bad thing for economic > stability, and the Fed has argued repeatedly that more consolidation > is needed.) > > To say that we should return to the days of government subsidies to > support inefficient airline operations (which you seem to be doing) > is, in a word, ludicrous. Some communities cannot support 737 service > and there is no right, simply because your community has an airport, > to point-to-point jet service. Airlines are not in the business of > looking for ways to lose money. If a route can support more capacity, > that capacity will be added either by the existing carriers or by a > new entrant. If there is one fundamental fact about our economic > system, it is that if you are sitting on a pile of money somebody is > going to try to take it. It is not the government's job to dictate > which carriers can fly to which cities and what equipment they must > use. Similarly, there is no intellectually honest justification for a > government subsidy that keeps a 737 flying 3 times daily to support an > average of 18 passengers per trip. Nobody benefits from that outcome. > > -----Original Message----- > From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf Of > kurtzke@xxxxxx > Sent: Monday, December 08, 2003 5:41 PM > To: AIRLINE@xxxxxxxxxxxxxxxxx > Subject: Re: Deregulation & Anti-trust Laws > > Douglas & List: > It shouldn't have. Perhaps I should have said "wryly" or "sadly" > rather than > "wisely." Alfred Kahn was the big promoter of deregulation in the > Carter administration. In a retrospective PBS program on the effect of > airline deregulation, Kahn said that when he argued for deregulation, > he never imagined that the federal government would stop enforcing > anti-trust laws. > But look at the big mergers that followed. If you think that was a > peculiarly Republican (Reagan) fault, look at the big oil & bank > company mergers that happened during the Clinton years. But that's > leading into off-topic territory. > > Maybe the coming thing in airlines is many airlines (from Southwest, > the recent startups, and the pieces of the coming bankrupt majors), > more point to point service, and a return of regulation. > > john > > On Monday, December 8, 2003, at 02:17 PM, Douglas Schnell wrote: > >> Okay, I'll bite. How does deregulation result in the suspension of >> antitrust laws? >> >> -----Original Message----- >> From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf >> Of kurtzke@xxxxxx >> Sent: Monday, December 08, 2003 2:40 PM >> To: AIRLINE@xxxxxxxxxxxxxxxxx >> Subject: Re: Can't wait until United dumps this sorry *ss airline >> >> BAHA and list, >> > [cut] > >> The result of deregulation (or as Alfred Kahn wisely noticed, the >> federal government halting enforcement of anti-trust laws) is that >> while you used to be able to fly United, North Central, etc. on a >> 737 or DC 9, you now get to fly a commuter airline on a commuter jet >> or a small turbo-prop. >> > [cut] > >> john >> >> Fan of enforcement of anti-trust laws > > John Kurtzke, C.S.C. > Department of Mathematics > University of Portland > Portland OR 97203 > > 503-943-7377 > John Kurtzke, C.S.C. Department of Mathematics University of Portland Portland OR 97203 503-943-7377