A simple idea for fighting global warming

Repeal the [should have read: "Institute an"] antitrust exemption for the airlines and approval all of their mergers, no matter what.

Higher P, lower Q.  And maybe some groups outside the traditional green coalition would support such a change.

By no means a full solution, but maybe better than doing nothing.

Comments

Huh? There's no antitrust exemption for airlines that I know of.

and increase taxation at the same time?

[and do nothing about the distributional impact? - OK if you're rich etc.]

I think you want to get rid of those congressionally mandated routes first, right? Isn't that the number one source of empty seats? (or am I listening to my libertarian friends ...)

To end illegal immigration for farm jobs, make the minimum wage appplicable to agricultural workers. Farms will higher less, mechanize more, illegals will go home..!!

Building a monopoly in the airline industry will be very difficult, if not impossible. So the major effect of this change would be to reduce the regulatory costs of the airlines that do want to merge, ultimately making air travel cheaper and increasing global warming.

I believe there are barriers to domestic and foreign airlines merging and/or buying each other, effectively shielding domestic lines from foreign competition (and vise-versa, I suppose).

However, I don't understand how allowing more mergers would increase the price of flying; generally you'd think the opposite would be true. I understand the barriers to entry are rather huge, so the market is quite a ways away from perfect competition, but higher (monopolistic?) prices seem hard to believe?

Maybe Tyler is referring to laws against the collusion of airline flight plans, which makes for more wasteful flights (i.e., empty seats). That would reduce Q, increase P on those flights that would otherwise be near-empty, and reduce fuel usage. That sounds like a good idea even if global warming were not an issue.

Tyler is just recycling the old adage in natural resource economics: monopoly is a conservationists best friend.

But, as Milan says, it is an indirect and wasteful way to implement the policy of 'fighting global warming.'

I think that people need to be a little more flexible in their definitions of "monopoly" as it applies to the airline industry. The fact that one company will never be able to monopolize all U.S. air travel does not mean that no airline will ever be able to exert monopoly power. A flight from New York to LA is useless for the person who's trying to get from Topeka to St. Louis, and as long as a given route has little or no competition, an airline will be able to charge monopoly prices on that route no matter who it's competing with on other routes.

Additionally, the lack of a true monopoly on a given route does not imply the inability to charge above market-clearing prices. Direct flights, or itineraries without long connections and/or layovers in cities that are far from the direct flight path, are clearly more valuable than flights with said layovers. As I see it, the hub and spoke system we have now is fundamentally designed to give airlines monopolies or near monopolies on as many routes as possible by limiting the number of airlines that will provide direct service to any given city whenever possible.

Wouldn't many people who would otherwise fly, especially relatively short distances, say between New York and DC, now start driving, off-setting fuel consumption reduced from flying? Also, unless this leads to roads ridiculously crowded, there will probably be more highway fatalities.

lee: "the hub and spoke system we have now is fundamentally designed to give airlines monopolies or near monopolies on as many routes as possible by limiting the number of airlines that will provide direct service to any given city whenever possible"

I do not believe that is the rationale at all for hub and spoke networks. I formerly worked for the orignator of hub-and-spoke airline networks.

Hub-and-spoke networks enabled expansion of air service to smaller cities. By combining passengers for many origin-destination combinations onto a single flight, hub-and-spoke allow many more frequencies between each city pair. For many city pairs, hub-and-spoke connectivity is the only economical service - such service would simply not exist in ansence of hub-and-spoke.

Hub-and-spoke networks both lowered cost of fares and increased service to America's smaller cities. Those networks actually increased competition by increasing the number of one-stop connections for each city pair. That's the opposite of creating monopolies.

The fact that one company will never be able to monopolize all U.S. air travel does not mean that no airline will ever be able to exert monopoly power.
...
Additionally, the lack of a true monopoly on a given route does not imply the inability to charge above market-clearing prices.

The concept of monopoly power has been refuted by Murray N. Rothbard in chap. 10 of his treatise Man, Economy, and State. I won't rehash his arguments here; you can look at it on your own (it might be on the web). As for airlines charging above market-clearing prices, that would be news to their long suffering shareholders. If airlines charge above market clearing prices, why have they always had low returns on equity, and low and erratic cash flows, and a history of losses and market-trailing stock prices as far as the eye can see?

Get rid of the cost curves and look at the real world of airline competition. Richard Branson, self-made billionaire and airline owner, said it's easy to become a millionaire. Just start as a billionaire and then buy an airline. So much for above market-clearing prices.

Bill, I don't think Rothbard's views are going to be very popular among the commentators here, but I could be wrong.

In any case, can anyone point to a time where monopoly power clearly and demonstrably harmed the consumer in America? The little I've read about antitrust legislation is that its a solution in search of a problem. Individual airlines aren't all that networked compared to other industries, so with the exception of large barriers to entry, I'm confused as to how any airline could harmfully wield monopoly power.

Too simple.

With apologies to Monty Python, this is how that plan will work in practice:

"Shut up, shut up, shut up! Sex, sex sex, must get sex into it. Wait, I see a television commercial- There's this nude woman in a bath talking about airline mergers. That's great, great, but we need a doctor, got to have a medical opinion. There's a nude woman in a bath with a doctor--that's too sexy. Put an archbishop there watching them, that'll take the curse off it. Now, we need children and animals. There's two kids admiring the airline merger, and a dog admiring the archbishop who's blessing the airline merger. Uhh...international flavor's missing...make the archbishop Greek Orthodox. Why not Archbishop Macarios? No, no, he's dead... nevermind, we'll get his brother, it'll be cheaper..."

I think it was a joke considering airplanes are a source of MASS transportation that can only decrease GHG emissions. If people do not fly, they will drive individually. I don't understand a increase in P and a lower Q. Next time you go to Barcelona, take a boat, and then drive the rest of the way, and tell me the extra 2 weeks of travel time each way was cheaper than your forgone monthly wage. If P increases, which I would expect to decrease, it would have to drastically increase to curb air travel.

"The hube-and spoke-system was indeed an enemy of monopoly. Fred Smith used it to undermine the Post Office's monopoly when he started FedEx in 1971"

Oh, thank you for mentioning FedEx, Bill. I worked for Fred Smith for 14 years, and helped expand the FedEx transport network from the single Memphis hub into the multi-hub network now in place. By the end of the 20th century, we had major hubs in Indianapolis, Newark, Oakland, Fort Worth, and the Philipines as well as in Memphis. Smaller sort operations in a dozen other locations were also mini-hub and spoke operations. Engineering that network - not just aircraft/truck routings but also zip-to-zip package flows - was a dream job.

"Not a single CO2 doubter questioning the basic premise. I'm surprised."

This doubter of computer predicted CO2 feedback effects is worn out from arguing with global warming religious zealots.

Darn. This time I did it.

I am with John D - irrational reliance on what sound "right" and feels good will not make the world a better place...

CO2 is a manageable output - grow more trees...

Carbon taxes limit growth - and growth is the only way to those with less having more...

FC

This post makes multiple very serious errors. It assumes that mergers create inefficiencies. While it is surely possible that mergers can raise prices, it is also quite likely that mergers increase efficiency, ensure that products can be produced more cheaply, and lower prices. Indeed, mergers can both lower production costs but still increase prices if the increase in monopoly power is large enough. But I know of no real evidence that mergers tend to increase prices. Despite what Tyler is claiming, I know of no reason to believe anti-trust enforcement is competent at determining which mergers increase efficiency and which ones do not. If Tyler thinks that the government is particularly good at discerning mergers that are efficiency creating and those that aren't, he should point to it. Indeed, George Stigler argued that the Sherman Act was passed to protect less efficient firms from competition by more efficient ones (Stigler, George J. 1985. "The Origin of the Sherman Act," Journal of Legal Studies, 1985, 14:1-11).

While not errors of the same magnitude of simple poor logic, it is too bad to see that Tyler accepts the assumption that we need to do something more about global warming.

Comments for this post are closed