Jet Blue and American Airlines Guilty in Antitrust Case Despite No Obvious Harm to Consumers

American Airlines and Jet Blue violated these rules Sherman Antitrust Act of 1890A federal appeals court said Boston Logan, JFK, LaGuardia and Newark Liberty airports achieved the agreement by sharing revenues and coordinating services. in it ideaAppellate Judge William Kayatta Jr. wrote that “anticompetitive harm is of no consequence in this case,” regardless of whether the airlines were actually harmed by any of their actions.

The First Circuit Court of Appeals upheld Massachusetts District Judge Leo Sorokin’s decision. decision inside USA – American Airlines on Friday. The case revolved around the Department of Justice (DOJ) complaint filed in September 2021 against the Northeast Alliance (NEA) between American Airlines and Jet Blue. The complaint alleged that NEA, which went into effect in February 2021, violated Section 1 of the Sherman Act by “effectively consolidating its operations in Boston and New York City and eliminating competition.”

Although interpretations of the Sherman Act are controversial, this should not be the case when consumers are evaluated in an antitrust case. Under President Joe Biden’s antitrust regime, unnecessary consideration has been placed on competition itself, rather than on whether coordination between firms actually harms consumers.

The complaint’s stated motivation is still to harm consumers: the Justice Department sued American Airlines and Jet Blue “to prevent hundreds of millions of dollars in harm to consumers if these two competitors were allowed to continue this modern version of the nineteenth airliner.” “Business trust of the century” according to your complaint.

American Airlines and Jet Blue filed a lawsuit motion to dismiss In November 2021, he claimed that the Department of Justice had failed to defend market power; this “requires a showing that Defendants could raise the price by restricting production.” Sorokin rejected this suggestion and confirmed that “a deep and searching analysis is not required to realize” the illegality of the NEA. May 2023 decision.

The defendants emphasize Despite a year-long investigation before filing the complaint, the Department of Justice neither found nor alleged that NEA had increased prices or reduced the airlines’ quality of service. However, Sorokin accused the defendants of reducing the number of competitors, undermining Jet Blue as a “maverick competitor” and engaging in horizontal market sharing. But this market division did not cause any meaningful harm to consumers: Jet Blue’s consumer satisfaction Since its implementation, its pre-NEA score has remained around 78 and ‘American Airlines’ has increased monotonically since its implementation.

Economist and lawyer Don Boudreaux says no one knows what the optimal industry structure is in advance; The market is fundamentally a discovery process. However, Sorokin believes that more companies and competition will necessarily be better. But this is not the case. Boudreaux explains that because of the high fixed costs in the airline industry, there is even an economic argument in support of price fixing (which is prohibited by the NEA) insofar as it encourages new firms to enter the market by reducing uncertainty about profitability. investment.

The Department of Justice should be aware that horizontal market fragmentation is not necessarily bad for consumers. The agency itself informally cooperates with the Federal Trade Commission (FTC) to specialize in enforcing the Sherman Act, while the FTC enforces the Clayton Antitrust Act.

1st Circuit’s decision He affirmed that “the Sherman Act ‘exists to protect the process of competition itself'” and does not need to prove that prices are set above a competitive level. In doing so, Kayatta misses the forest for the trees: Consumer welfare is intrinsically important; Competition serves only this purpose.