Thursday, October 30, 2008

Some Potential Issues in Delta/Northwestern To Consider

Posted by Darren Bush

Can someone help me out here?   There might be compelling reasons for the merger.  Don’t get me wrong.  The most compelling case I have heard is from a former student of mine.  Kristina McQuaid, Delta & Northwest File for Bankruptcy: Is It Time To Ground A Major Airline?, 29 Hous. J. Int'l L. 663 (2007).The article is quite prophetic.

But when I testified in Senate Judiciary with the CEOs, they pretty much swore no one was going to get laid off, that no hubs would be closed, and that the efficiencies gained would be derived from fuel cost savings at a time when jet fuel prices were quite high (you know, unlike now). I’m not really sure how those efficiencies will translate in a world where jet fuel prices are no longer off the charts.

The press release states that there is competition on the ”vast majority” of nonstop routes?  So allowing a merger in which there are routes in which there is no competition is totally fine because there aren’t so many of them?   By the same token, suppose two firms offer 100 different products, overlapping in many of them, but only creating a 2 to 1 scenario in only four markets. 

Should we ignore the anticompetitive effects in those markets if someone, somewhere is better off?  That isn’t what Philadelphia National Bank says. The DOJ’s press release in Northwest/Delta reads in stark contrast to its United/U.S. Airways press release.  The United/U.S. Airways press release demonstrated a much more sophisticated understanding of the market, being far less cursory in the analysis offered to the public.   Which leads me to wonder what types of pressure, either political or economic, might have been placed on our stalwart antitrust enforcement officials (by which I mean the staff).

The largest problem is that efficiencies now appears as a trump card in mergers.  No matter what the Guidelines state, it appears that so long as you have efficiencies somewhere, it doesn’t matter if there is an anticompetitive effect somewhere.  Good for some consumers and to heck with the rest.  I’m used to that mindset in Section 1 rule of reason cases, but find it disgruntling in a Section 7 context.

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