Upload
melanie-caine
View
217
Download
0
Tags:
Embed Size (px)
Citation preview
DOJ Investigation Began in 1991Settled by Consent Decree in 1994
Never Went to Trial
Central clearinghouse for dissemination of fare change information
Airlines send information to ATPCO daily◦ New fares added◦ Old fares removed◦ Existing fares changed
ATPCO sends compilation to ◦ Computer reservation systems (CRS)
Available to travel agents and consumers◦ All major airlines
Fare basis code or “name” of fare Origin and destination airports Price First and last ticket dates First and last travel dates Restrictions
◦ Advance purchase◦ Minimum stay◦ Blackout dates◦ Specific routing or set of flights
By setting a future first ticket date, an airline could announce a fare increase, but delay its implementation.
“Pre-announcement” of price changes Ticket and travel dates as well as restrictions
were submitted as footnotes to the fare. “Footnote designators” are names for
footnotes submitted by airlines Fare basis codes and footnote designators
could be used as a means of communication
Filed charges against ATPCO and 8 airlines Airlines used ATPCO to collude to raise prices
and restrict competition Data from ATPCO records and airlines’
internal documents◦ One carrier announces fare increase on future date◦ Other carriers announce increases on same route,
often at a different fares◦ Iterated back and forth until all charge same fare
on same date◦ When “agreement” was not reached, fare increase
did not go into effect
Suppose Middle Tennessee Airlines has a hub at Nashville and offers non-stop flight to New Orleans and Chicago
Mid-South Airlines has a hub at Atlanta offering non-stop flights to New Orleans and Chicago
Both also operate flights on the Atlanta-Nashville route
Each offers one-stop service in competition with the other’s non-stop flights
Suppose MTA is unhappy with MSA’s Atlanta to Chicago fare◦ MTA cuts its Nashville to New Orleans fare with a short
last ticket date below that offered by MSA using a basis code similar to MSA’s for Atlanta-Chicago
◦ MTA then matches MSA’s Nashville-New Orleans fare with a first ticket date the same as the previous last ticket date
If MSA gets the message, ◦ it ends its cheap Atlanta-Chicago fare and matches
MTA’s fare on that route ◦ with a first ticket date that is the same as MTA’s last
ticket date on the cheap Nashville-New Orleans fare Result: each carriers’ one-stop fare matches the
other’s non-stop fare
Not a per se violation of Sherman Act◦ Consumers benefit from fare info
Evidence: Bookings surge near end of sale, fall shortly after fare increases
◦ Court should use a rule of reason standard All firms respond to actions of competitors
◦ DOJ allegations indistinguishable from competition Pre-announcement also occurred on monopoly
routes where collusion is irrelevant No pre-announcement of price decreases
◦ Decreases are more destabilizing to cartel behavior Basis codes and designators not used to signal
connections between fares Unknown number of seats available for any fare Low profits, frequency of exit implies any price-
fixing is not effective at raising profits
Consumer benefits small in comparison to opportunity to coordinate prices◦ Surges occurred only on a few well-publicized
occasions, not those with multiple end-date changes◦ Pre-announcement on monopoly routes shows some
value to consumers Pre-announcement of fare decreases were
avoided because of likely antitrust problems Remaining seat availability for a fare is known,
even if total number of seats is not Profits not relevant, collusion may raise profits
(reduce losses) even when firms still lose money
When DOJ filed its case, it also filed a settlement with two airlines◦ United and USAir◦ Agreed to stop pre-announcement of fares
Tunney Act: Court must review government antitrust settlements ◦ Other airlines opposed◦ DOJ said harm to conspiracy only reason to oppose◦ Court accepted settlement
March 17, 1994 final settlement ◦ No restrictions on fares, but no pre-announcement◦ No linking with codes or designators◦ Expires in 10 years (2004)
Airlines announce fare increases on Friday afternoon effective Saturday
Traffic is low on weekends; few tickets sold If competitors do not match by Sunday
afternoon, ◦ Increase is withdrawn Sunday night◦ Old fare in effect Monday morning
If competitors match the increase, the higher fare remains in effect
Did not go to trial ◦ no court decision or order◦ no antitrust precedent was created
Signaled the DOJ’s willingness to pursue coordinated prices made possible by rapid communication
In Economic terms, the airlines’ use of ATPCO was a facilitating practice
Still not clear if this was evidence of conspiracy (per se violation) or an illegal practice under rule of reason