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Predatory Practices in the U.S. Airline Industry

Source: ostpxweb.dot.gov
Topic: Airline Industry

Sort Desciption: Source: Transportation Research Board, Entry and Competition in the U.S. Airline Industry, Special Report 255, (Washington: National Academy ...

Content Inside: 1 Predatory Practices in the U.S. Airline Industry Clinton V. Oster, Jr. Indiana University John S. Strong College of William and Mary January 15, 2001 2 TABLE OF CONTENTS I. Executive Summary II. Overview III. Entry And Competition in the U.S. Airline Industry Historical Background Some Examples that Raise Concern Other Examples of Potential Anti-Competitive Behavior in Response To Entry Trends in Entry Activity Differences in Responses by Type of Entry Responding to Entry through Low-Fare Subsidiaries Effects on Applications of New Airlines to Begin Service IV. Economic Analysis Of Predatory Conduct Predatory Pricing Market Power And A Two-Part Test V. Predatory Practices In The Airline Industry Challenges in Applying Cost/Price Tests to the Airline Industry Predatory Practices versus Predatory Pricing Additional Considerations Regarding Predatory Conduct in the Airline Industry When Might Predatory Practices be Rational for an Airline? Market Power And Hub Premiums VI. Summary Appendix A: Responses to Competitive Entry Appendix B: Hub Premiums Appendix C: US Department of Transportation Hub Premium Analysis 3 I. Executive Summary This report examines the potential for predatory practices, or unfair methods of competition, in the U.S. domestic airline industry. Two main conclusions emerge from this analysis. The first is that predatory practices may have occurred in the past and are a recurring possibility in the U.S. domestic airline industry. For such predatory practices to be a rational business strategy, there must be some expectation that any losses or reduced profits incurred while driving a rival from the market can be recouped through higher prices once the rival has left the market. This study concludes that there is sufficient market power in the airline industry, as shown by the persistence of hub premiums at many airports, to allow recoupment of losses incurred in driving a competitor from a market. The second conclusion is t ...

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