Thursday, August 20, 2009

How Bad Is Antitrust Immunity for Aviation?

In the closing pages of his entertaining and informative polemic, The Antitrust Religion (Cato Inst. 2007), former Chairman of the ABA's Antitrust Law Section Edwin S. Rockefeller writes:

The antitrust laws provide a vehicle for the antitrust community to carry on a useless, mischievous activity portrayed as law enforcement.  Antitrust has been called "a subcategory of ideology," "a religion without a cause," and a "hoax."  Whatever antitrust may be, it is not law enforcement.  Justice Abe Fortas wrote: "Antitrust in the United States is not...a set of laws by which men may guide their conduct.  it is rather a general sometimes conflicting statement of articles of faith and economic philosophy.

Id. at 99.

There should be little doubt that Rockefeller's iconoclasm has not won any apostates from the Antitrust Division at the Department of Justice, nor from the "antitrust community" at large.  Cf. Christine A. Varney, Assistant Attorney General, U.S. DOJ Antitrust Division, Vigorous Antitrust Enforcement in This Challenging Era, Remarks to the U.S. Chamber of Commerce (May 12, 2009) (available here).  Still, that hasn't stopped some who are faithful to the "antitrust religion" from recommending the book.  See Required Reading for the New Antitrust Administration, Antitrust Source, Aug. 2008, at 2 & 4 (available here).  While Rockefeller's indictment of antitrust may seem extreme, it is in fact part of a significant line of criticism which has agitated for repeal of all U.S. antitrust statutes.  See, e.g., D.T. Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (Independent Inst. 2d ed. 1996); D.T. Armentano, Antitrust: The Case for Repeal (Ludwig von Mises Inst. rev. 2d ed. 2007); The Abolition of Antitrust (Gary Hull ed., Transaction Pub. 2005); Cato Inst., Cato Handbook for Policymakers 411-17 (Cato Inst. 7th ed. 2009) (available here).  So, on the assumption that Rockefeller et al. are on to something with regard to antitrust, how uncomfortable should we be with the Department of Transportation's vestigial authority to immunize international intercarrier agreements from "judges and other government officials mak[ing] arbitrary decisions using antitrust doctrines based on faith not easily overcome by reason, logic, and empirical data"?  Rockefeller, supra, at 8.

For over six decades the air transport industry has had to labor under regulatory scheme drawn up on the basis of its supposed "exceptionalism."  While the U.S. Government eventually came around to dismissing much (though not all) of that "exceptionalism" as good grounds for comprehensive regulation in 1978,  international aviation remains in the grip of bilateral trade agreements and protectionism.  Perhaps this is why lawmakers implicitly left the old Civil Aeronautics Board's immunization powers for agreements involving foreign air transport untouched when they transferred to the DOT.  See CAB Sunset Act of 1984, sec. 3, Pub. L. No. 98-443, 98 Stat. 1703; see also id. sec. 3(c) (sunsetting the CAB/DOT immunization powers for domestic air transportation on Jan. 1, 1989).  Both the DOT and the DOJ opposed the former retaining the old CAB immunization powers on the grounds it could lead to "reregulation," see Legislative History of the [CAB] Sunset Act of 1984, 1984 U.S.C.C.A.N., at 2864, though it seems that such fear is only justified if the DOT were to wield its powers in a non-transparent, discriminatory fashion.  Interestingly, with respect to international agreements, it has been the DOT's generally positive and, one might say, non-discriminatory approval and immunization of airline alliances which has drawn the most ire from policymakers and industry observers.  In approving theseventures, however, the DOT has allowed a struggling industry which must contend with outmoded nationality and cabotage restrictions to provide comprehensive network benefits to consumers without the specter of arbitrary antitrust enforcement haunting their every move. 

Three decades after deregulation, lawmakers are now regressing from the more enlightened thinking about civil aviation of the 1970s back to the myth of "exceptionalism" and the attendant (but specious) "need" for robust regulation.  Rep. James Oberstar has been particularly vocal about reharnassing the industry by strengthening the nationality rule and sunsetting antitrust immunity for alliances.  See FAA Reauthorization Act of 2009, secs. 426 & 801, H.R. 915, 111th Cong.  But as Prof. Brian Havel recently opined:

If the government is in a regulatory frame of mind, however, why should we go Oberstar's way [and sunset antitrust immunity for alliances]?  Why would it be so outlandish to rebuff Oberstar and for Congress to expand antitrust immunity in these challenging times, not restrict it?  For example, we could allow temporary immunity for domestic intercarrier agreements as we did in the days of the [CAB].  Lufthansa and Austrian have this privilege (in the context of the EU internal market), so why not in the United States?  It seems extraordinary to me that United can have antitrust immunity with Air Canada that covers the Chicago and Toronto hubs which are only 300 miles apart, but is prohibited from a similar arrangement with Continental even though Chicago and Continental's Houston hub are three times that distance apart.

If there is a tension between the industry's need for consolidation and Congress's understandable fear of reducing the number of domestic airlines, then why not call Congress's bluff, sideline Oberstar, and lobby for domestic antitrust immunity?  Given the connections that U.S. network carriers have with international alliances, and the proven economic success of those connections, why would this be such a dangerous or commercially illogical move? . . .  It is time to recognize that, when Adam Smith meets the airline industry, sometimes classic competition and network competition are not in perfect alignment.

See Brian F. Havel, In Praise of Law's Cosmos: Reflections on the Entrepreneurial Spirit in Aviation Law and Policy, Keynote Address to the IATA Legal Symposium, Bangkok, Thailand (Feb. 9, 2009), reprinted in 8 Issues Aviation L. & Pol'y 127, 131-32 (2009).

The thought that civil aviation--domestic and international--should be shielded from antitrust enforcement may appear revolutionary, but the U.S. statutory archives already provide ready-made standards which could be reanimated.  See 49 U.S.C. § 1378(b)(1)(B) (1979) (repealed).  Perhaps the airlines could prove to be a useful test case for further rethinking of U.S. antitrust law and enforcement.  Maybe it will become clear that the old hobgoblins of antitrust--"market power," "barrier to entry," and "predatory pricing"--will be revealed as the stuff of fantasy in the context of the aviation industry.  At the very least, immunization certainly couldn't hurt this already beleaguered sector of the economy.

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