Airline Re-Regulation

The New York Times is up in arms over the merger between American Airlines and US Airways, and is (surprise, surprise) calling on the government to step in and regulate the prices and/or routes that the resultant conglomerate can implement.

American Airlines and US Airways announced Thursday that they would merge, creating the world’s largest airline. The deal should cause antitrust regulators and the flying public grave concern because it would leave more than 70 percent of the passenger business in the hands of four behemoth airlines, which would have unassailable holds on most of their hub airports.

The antitrust division needs to investigate this deal rigorously and thwart the damage to competition. It could, for instance, get the airlines to give up gates and takeoff and landing slots at their hubs to competitors. If that does not work, regulators could sue to block the merger.

Murray Rothbard, for his part, has written in the past about how government regulation of the airlines in the first place leads to this sort of activity by erecting barriers to market entry and thus promoting cartelization, and why further regulation will only make things worse.

There is already a mounting hysteria that the number of airlines is now declining, and that we are therefore “returning” to the “monopoly” or quasi-monopoly days of the CAB. Is not a new CAB needed to “enforce competition”? But this ignores the crucial difference between monopoly or large-scale firms created and bolstered by government privilege, as against such firms that have earned their position and are able to maintain it under free competition. The government-maintained firms are necessarily inefficient and a burden on progress; freely-competitive “monopoly” firms exist by virtue of being more efficient, providing better service at lower rates, than their existing or potential competitors. Even if the absurd fantasy transpired that only one U.S., presumably not world-wide airline, emerged from free competition, it would still be vital to avoid any governmental interference with such a free-market firm.

Note, in short, what the pro-cartelists are saying: they are saying that it is vital for the government to impose a coercive, inefficient monopoly now to avoid the shadowy possibility of an efficient, freely-competitive monopoly at some future date. Looked at this way, we can see that the call for re-regulation and cartelization makes no sense whatever except from the viewpoint of the cartelists.

Read the whole thing here.

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