Anititrust – American Airlines Essay, Research Paper

I feel American Airlines is in violation of all three of the major pieces of antitrust legislation in one way or another. The three acts are the Sherman Act, the Clayton Act, and the Federal Trade Commission Act.

Section I of the Sherman Act prohibits:

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal and is a felony punishable by fine or imprisonment.”

Section II applies to:

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony and is similarly punishable.”

American Airlines is in per se violation of the restraint of trade element of Section I. American Airline’s former chairman admitted that they took willful action to put Vanguard Airlines, Sunjet International, and Western Pacific out of business or at least out of that market. This is blatantly anticompetitive.

American may also be in per se violation of Section II because of its use of predatory pricing methods. American Airlines tried to cement their monopoly on the Dallas Fort Worth Area by increasing its capacity while reducing fares at a rate that defies business logic in an obvious attempt to snuff out the newer, smaller companies.

Another major element of Section II is monopolization. Monopolization is defined by the Supreme Court as having these two elements:

“the possession of monopoly power in the relevant market and the willful acquisition or maintenance of the power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

To be in violation of Section II, these two elements have to be breached.

Does American Airlines meet the definition of a monopoly? It does carry 77 percent of the passengers who fly nonstop to and from Dallas. American may not be the sole entity in this market, but it does hold a considerable amount of market power in the area. Also, did American Airlines exhibit anticompetitive behavior and intent? I feel it did. The former chairman admitted that they wanted to take the competition out of the market. The price rate reduction and escalation only reinforces his comments. There was an attempt at monopolization because even with the competition, American still had a large market presence in the area.

Concerning the Clayton Act, I feel American Airlines is in violation of the price discrimination section of the act. American Airlines meets the criteria of this section because it does engage in interstate commerce and the price discrimination it was involved in effected competition greatly by lessening it. I also think American was guilty of violating an amendment to the Clayton Act, the Robinson-Patman Act. American substantially reduced prices to levels below their competitors and “did not do so in good faith to meet an equally low price of a competitor.”

The Federal Trade Commission Act has an “umbrella” section (5) which prohibits:

“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are hereby declared illegal.”

This clause is very “all encompassing.” I think American Airlines is obviously guilty of using unfair methods of competition and by using these unfair methods affected commerce greatly in the greater Dallas-Fort Worth Area.

Is it “just business” or is it “just unethical?” Sometimes it’s hard to distinguish between the two. The goal of business is to maximize company profits as much as possible. In an ideal world business should also want to satisfy consumer needs. American Airlines did provide to the consumer a substantial discounted cost for a period, however, once the competition was gone, the fares were drastically increased to make up for the lost earnings during the discounted period. Sometimes the means businesses use is illegal. American Airlines knew their actions would drive out their competitors. Their actions were willful, blatant, intentional, and unethical.

The Sherman Act is very clear in that the consequences of violating the act can be fine or imprisonment. The DOJ or the other airlines that were ran out out of the market by American can pursue damages. Vanguard Airlines, Sunjet International, and Western Pacific could pursue damages that would represent the lost revenue that they would have earned had they not fallen victim to the predatory pricing of American Airlines.