The U.S. Department of Justice and the Federal Trade Commission are busier than ever before in history as antitrust law enforcement agencies, and that’s bad news for American businesses. The Justice Department’s recent decision to allow the merger of American Airlines and US Airways, conditional on the selling of a comparative handful of the two carriers’ takeoff and landing slots at Washington Reagan National and New York’s LaGuardia airports, is a poster child of the Obama administration’s competition policy stance during the president’s first term in the White House.
In the course of protracted bankruptcy proceedings, American Airlines was able to obtain backing from its creditors and three of the key labor unions representing its workers. Their support was conditional on the airline’s restructuring plan, which included a merger with US Airways, to create a company large enough to compete effectively with Delta and United airlines. The Justice Department had not long ago approved the Delta Air Lines‘ and United Airlines‘ mergers with, respectively, Northwest and Continental without raising any major concerns about their effects on the flying public. The government’s challenge to the proposed American-US Airways combination, announced last August, threw a monkey wrench into the restructuring plan, which kept the two companies in bankruptcy limbo for three months.
The Justice Department surprisingly reversed course in early November, when it announced that the merger could be consummated — if the two companies relinquished control of about 100 of the more than 1,000 airport slots they owned nationwide where consumers possibly would face higher airfares, poorer service, or both, if the two airlines combined their flight operations.
“Possibly” is the operative word here. The analysis of the effects of mergers on relevant markets requires the antitrust authorities to predict ahead of time what the competitive consequences of business consolidations might be, without knowing how they actually will turn out. Despite the fact that many of the government’s lawyers and economists are smart and perhaps even well meaning, that knowledge exceeds their capacities.
(Photo Credit: Flickr via DonkeyHotey)