How the Airlines Became Abusive Cartels
*But no refinement of voluntary market remedies will fix the deeper mess of the airline industry. For air travel is far from a free market.
When the airlines were deregulated in 1978, economists led by Alfred Kahn, then chairman of the Civil Aeronautics Board, argued that airlines and airline tickets were really like any other free-market product. He called them “marginal costs with wings.” Nearly 40 years of deregulation have disproved that premise.
Previously, the C.A.B. had ever since the 1930s regulated both fares and routes and guaranteed the airlines a decent but not exorbitant profit. The airlines, in turn, had the predictability to invest in new generations of more fuel-efficient aircraft, which allowed fares to drop over time. Prices actually dropped at a faster rate in the decades before deregulation than afterward.
Kahn believed that if new competitors could enter markets and charge whatever prices they liked, fares would drop even faster and more people would fly. But airlines do in fact have fixed costs in the form of expensive capital equipment. And one seat is pretty much like another — as economists say, there is little product differentiation — so in a competitive free-for-all, everyone goes broke. . .
Today’s auction system on oversold flights, ironically, is the stepchild of a 1976 Supreme Court case, Nader vs. Allegheny, in which the late and little lamented Allegheny Airlines (known to its long suffering passengers as Agony Airlines) picked the wrong passenger to bump. Ralph Nader sued and the case went all the way to the Supreme Court.
The high Court, in a 9-0 ruling, held that if a passenger had a confirmed ticket, the airline was committing a fraudulent act by bumping him. (Allegheny, fittingly, merged into USAir, which was merged into United.) After a search for remedies, the industry eventually came up with — what else — a wondrous market solution: the auction. . .
There is a middle ground between an abusive cartel and a ruinous free-for-all in the skies. It’s known as regulated competition.'
https://www.nytimes.com/2017/04/17/opinion/how-the-airlines-became-abusive-cartels.html?
Economists may or may not have learned something(s) from airline 'deregulation.' Too bad President Carter adopted Kahn's
thinking.
And anti-trust enforcement has gone down the tubes.
= new reply since forum marked as read
