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DOJ Investigation Began in 1991 Settled by Consent Decree in 1994 Never Went to Trial.

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Presentation on theme: "DOJ Investigation Began in 1991 Settled by Consent Decree in 1994 Never Went to Trial."— Presentation transcript:

1 DOJ Investigation Began in 1991 Settled by Consent Decree in 1994 Never Went to Trial

2 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

3 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

4 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

5 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

6 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 others non-stop flights

7 Suppose MTA is unhappy with MSAs 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 MSAs for Atlanta-Chicago MTA then matches MSAs 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 MTAs fare on that route with a first ticket date that is the same as MTAs last ticket date on the cheap Nashville-New Orleans fare Result: each carriers one-stop fare matches the others non-stop fare

8 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

9 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

10 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)

11 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

12 Did not go to trial no court decision or order no antitrust precedent was created Signaled the DOJs 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

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