The new world of monopoly? What about flying?

I frequently see airlines cited as an example where the American economy is obviously more monopolistic.  By some metrics, yes, but what about the final deal?:

For more than three years, the average one-way fare between Detroit and Philadelphia never dipped below $308, and sometimes moved higher, topping $385 at one point.

But then, early in 2016, fares suddenly started to fall, according to data from the Bureau of Transportation Statistics. By the end of the year, the average one-way ticket between the two cities stood at just $183.

What changed? The primary factor was Spirit Airlines [a budget carrier].

…Even as a wave of mergers has cut the number of major carriers to four and significantly reduced competition, lower-cost airlines continue to play a role in moderating ticket costs.

…The cost of a round-trip domestic ticket averaged more than $490 in the first half of the year, up slightly compared with 2016, according to Airlines Reporting Corporation, a company that settles flight transactions between a number of carriers and booking services like Expedia.

The jostling, however, has left airline investors skittish. As the publicly traded airlines in July reported earnings for the second quarter, shareholders sold off their shares, worried about the fight over fares and capacity increases.

That is from Micah Maidenberg at the NYT.  In other words, the market still has a fair amount of contestability.

Or consider some more aggregated data.  As for output restrictions, here is the DOT series on aggregate miles flown.  No doubt, there are problems around the time of 9/11 and also the Great Recession, with 2008-2012 being a period of slight quantity contraction.  But in 1985 there were 275,864 [million] total miles flown, in 2006 it was 588,471, and 641, 905 in 2015.  I’ll ask again: if there is so much extra monopoly, where are the output restrictions?

Or look at the price index.  Overall prices are down considerably since 2008, and from about 2000 to 2016 they run from about 250 (eyeballing) to about 270, noting 1998-2010 saw a huge run-up in oil prices.  Since 2005, the U.S. went from having nine major airlines to four.

Maybe you’re upset about quality, but baggage lost each year — one of the easier quality variables to measure — is going down steadily.

Is this perfect competition?  No, of course not.  Is this ideal performance?  No.  Will looking at concentration ratios help you understand the industry very well?  Even more no.  And this is one of the worst cases of changing concentration ratios I can find.  Tomorrow, shall we do booksellers?  Or do I not even need to bother?

Comments

Comments for this post are closed