Anti-Consumer Regulations Proposed By DOT

Washington, DC, April 6, 1998 — The Competitive Enterprise Institute today denounced proposed airline pricing guidelines released today by the U.S. Department of Transportation as anti-consumer and anti-competitive. "By limiting fare cuts", noted CEI Vice President James Gattuso, "DOT may be turning the fierce jungle of airline competition into a petting zoo. That’s bad news for consumers."

The newly-proposed guidelines would put limits on how much an airline can cut its prices or increase service to respond to new competition. The Department’s rationale is that such activity can drive new competitors from the marketplace. This logic is not only flawed, but harmful to consumers, for several reasons:

• Claims of such "predatory" behavior are often made, but rarely proven. According to economists Donald Boudreaux and Andrew Kleit (in a CEI study published last year), predation is the "Loch Ness monster" of antitrust.

• The real losers are consumers, as competition in the industry is chilled. For instance, in 1992 and 1993, when litigation was pending against American Airline for predation, fare wars in the industry came to a virtual halt.

• These rules allow airlines to compete with their lawyers, rather than compete for consumers. According to Gattuso, "They’re every weak competitors dream. If your rival is underpricing you, drag him into court."

• If policymakers really want to foster competition, they should look to reduce government intervention in aviation, not increase it. For instance, taking the air traffic control system out of the FAA and into the private sector (as has been done in Canada already), could increase the system’s capacity, and make room for more competition.

CEI is a non-profit, non-partisan pro- consumer research and advocacy institute dedicated to the principles of free markets and limited government. For more information, contact Emily McGee or James Gattuso at 202-331-1010.