Enforcement policy regarding unfair exclusionary conduct in the air transport industry : findings on the economic, policy, and legal issues

PDFResearch PaperAirlinesAviationCompetitionBusiness practicesMonopolyPolicy, legislation and regulationAnalysisLegal actionEconomic analysisUnited StatesUnited States. Dept. of TransportationUnited States. Dept. of TransportationNTL-LAWS AND REGULATIONS-Aviation Laws and RegulationsNTL-AVIATION-Aviation Planning and PolicyNTL-AVIATION-Aviation Laws and RegulationsNTL-AVIATION-Aviation Economics and FinanceUS Transportation CollectionThis Administration has investigated whether incumbent airlines have been responding to entry by other airlines in ways that seemed intended not as legitimate competition but as a means of creating or maintaining market power. On the basis of that investigation and the record developed in this proceeding, this Administration has concluded that incumbent airlines at times have responded to new competition with fare cuts, capacity increases, and other practices that are apparently designed to eliminate or reduce competition. An airline's success in eliminating or reducing competition will harm the public by denying travelers the lower fares and better service created through competition. We have always believed that this Department has the responsibility to use its authority to prohibit unfair methods of competition in the airline industry that harm consumers. Competition brings consumers lower fares and better service, and maintaining competition is essential to ensure the continuing success of airline deregulation. This Administration believes that the Department should take action to prevent such unfair competitive practices. Congress has given the Department the responsibility of preventing unfair competitive practices in the airline industry. This Administration is publishing these findings to lay a foundation for future action by the Department. Publishing our economic and policy analysis will provide the industry, as well as the traveling public, with an understanding of the practices that should concern those who share the Administration's interest in ensuring that consumers continue to benefit from airline deregulation. This paper begins by describing the history of this proceeding. The paper then describes the domestic airline industry and discusses the factors that persuaded us to propose an enforcement policy - the ability of hubbing airlines to gain and keep market power in hub markets, and major airline responses to entry by a low-fare airline in hub markets that appeared to be intended only to eliminate competition. We then explain the basis for our findings, why we did not adopt the alternatives proposed by commentators for addressing unfair competitive conduct, and the likely impact of implementing our findings on consumers and airline operations. 114 p