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Why Aren't Dominant Hubs Called "monopolies" In US  
User currently offline767Lover From , joined Dec 1969, posts, RR:
Posted (10 years 4 months 3 weeks 3 days 23 hours ago) and read 2833 times:

It seems that when there is a dominant player in a market (Delta in ATL, AA at DFW, USAirways in Charlotte) it makes it very difficult, if not impossible, for other carriers to break in and compete. As in what happened to JetBlue in ATL.

Does anyone know why this is not considered a "no no" under US laws regarding monopolies? Aren't there any rules about limiting the number of airline gates to one specific airline?

Don't flame me if this is a dumb question...

16 replies: All unread, jump to last
 
User currently offlineMaverickM11 From United States of America, joined Apr 2000, 17418 posts, RR: 46
Reply 1, posted (10 years 4 months 3 weeks 3 days 23 hours ago) and read 2807 times:

Quite simply, on a micro level they may appear as monopolies, especially to those that live in the hub city. But on a macro level these hubs compete with each other. In other words to a MSP or CVG resident, their airport carriers clearly have a monopoly on OD traffic, but connecting traffic is a completely different story. A flight from SEA-BOS could connect through competing hubs including MSP, DTW, PIT, CVG, PHL, CLT, ATL, DFW, ORD, etc etc etc, for example.


E pur si muove -Galileo
User currently offlineBoingGoingGone From , joined Dec 1969, posts, RR:
Reply 2, posted (10 years 4 months 3 weeks 3 days 22 hours ago) and read 2739 times:

Because the competition is free to enter the market, they generally choose not to however. Except for AirTran and Frontier who have faired quite well.

User currently offlineNWA Man From United States of America, joined Jun 1999, 1828 posts, RR: 12
Reply 3, posted (10 years 4 months 3 weeks 3 days 22 hours ago) and read 2704 times:

Not a dumb question at all. On the surface, NW's operations at MEM and MSP, US's ops at CLT, DL's ops at ATL, etc. may seem like perfect examples of monopolies. But let's look a little closer.

Monopoly: Exclusive control by one group of the means of producing or selling a commodity or service (per dictionary.com).

So NW has a monopoly on MSP-BRD service because no other airline operates the route. Not MSP-BOI, however, because you can connect in DEN, SLC, or whereever on another airline to get to Boise. They have a monopoly on certain routes, and a monopoly on nonstop service on certain routes, but the vast majority of routes departing MSP have some sort of competition... thus, it's not a monopoly.

I hope that made a little bit of sense.



Regards,

N-Dub



Create your own luck.
User currently offlineKBUF737 From United States of America, joined Dec 2003, 779 posts, RR: 3
Reply 4, posted (10 years 4 months 3 weeks 3 days 22 hours ago) and read 2670 times:

Why isnt Coca-Cola a monopoly in Atlanta?




The tower? Rapunzel!!!!!!
User currently offlineInnocuousFox From United States of America, joined Dec 2003, 2805 posts, RR: 14
Reply 5, posted (10 years 4 months 3 weeks 3 days 21 hours ago) and read 2623 times:

Or Burger King a monopoly on the particular corner down the street?


Dave Mark - Intrinsic Algorithm - Reducing the world to mathematical equations!
User currently offlineN628AU From United States of America, joined Oct 2000, 343 posts, RR: 0
Reply 6, posted (10 years 4 months 3 weeks 3 days 21 hours ago) and read 2620 times:

It also has to do with barriers to entry. There is nothing preventing anyone from entering these markets, by any action of the carrier in place. While B6 may have pulled out of ATL, FL seems to thrive. TZ is doing well in the CLT market, especially considering it's relatively loew O & D number.

User currently offlineLTBEWR From United States of America, joined Jan 2004, 13073 posts, RR: 12
Reply 7, posted (10 years 4 months 3 weeks 3 days 21 hours ago) and read 2572 times:

So long as compeititors have even a slight chance of getting into an airport, or some other airlines service it, there isn't a monopoly, but it is close. Another problem is duopoly, where 2 airlines dominate at 75% or more a hub too. While for example DL at ATL isn't a monopoly there, there are serious de facto anti-trust questions. Many times a major whom dominates an airport has beaten up on possible competitiors by dropping fares, changing service, increasing service to take up a slot or gate from those competitors. There is also the sub-contracting to other companies or subidaries of the majors and a major's label of connecting smaller cities. The airlines in the USA via their corporate officers and lobbist groups give 'contributions' to the right politicans, especially Republicans, to keep the Justice Department anti-trust divisions away from them. As long as this continues, then people will have little chance of competition.

User currently offlineCkfred From United States of America, joined Apr 2001, 5211 posts, RR: 1
Reply 8, posted (10 years 4 months 3 weeks 3 days 18 hours ago) and read 2493 times:

Don't go blaming the airlines for contributing to Republican campaigns for so-called monopolies.

The Justice Dept. under the Clinton Administration sued AA for running Vanguard out DFW, and the Bush Administration continued to prosecute the case, including a subsequent appeal.

Simply put, the federal courts believe that, as long as an airline doesn't price its seats below it marginal cost, then an airline is never guilty of anti-competitive behavior.

I believe that AA matched Vanguard's fares and added additional seats on the routes they competed. Once Vanguard left DFW, service was reduced and fare swent up. The court ruled that AA was only meeting Vanguard's fares and added capacity, because of extra demand. Since Vanguard was not able to add flights, AA got more traffic. Once Vanguard left, AA was able to charge what it wanted, which resulted in fewer flyers.

The court noted that an LCC like Southwest would have the resources to add more flights and be able to stay on a route for the long term. After all, it was about this time that AA dropped ORD-ISP due to WN flying to ISP from MDW. Even though AA had flown ORD-ISP since before deregulation, it couldn't compete and make money, even by adding Eagle jets.


User currently offlineDutchjet From Netherlands, joined Oct 2000, 7864 posts, RR: 57
Reply 9, posted (10 years 4 months 3 weeks 3 days 18 hours ago) and read 2456 times:

This is a very interesting and controversial question. A couple of things have happened over the years that have turned individual hubs into virtual monopolies - first, several airline mergers; second, some smaller carriers have gone out of business; and, third, airlines continue to grow their mega hubs and continue to add service to new cities - regional jets have accelerated this situation. In real life, its seems as if the major carriers have divided up the map - each laying claim to certain hubs, and smaller carriers tend to shy away from megahubs since its so difficult to effectively enter those markets. That being said, we have seen Frontier become a success in Denver although UA has a hub operation at DIA, Spirit is looking at Detroit for major growth despite the fact that NW controls DTW, and of course Southwest plans to displace US at PHL.

The arguement against the monopoly theory is that you must look at the entire airline system in the US. You can fly from MSP to BOS on an airlines other than NW, although you may get to visit Chicago, Cincinatti or Newark on the way. There are usually several carriers available to take you from city A to city B - sometimes one or more carriers will offer nonstop service, other times you will be required to transit one of the hubs. The US government tends to agree with theory and therefore does not deem megahubs to be a monopoly situation.



User currently offlinePHLapproach From Philippines, joined Mar 2004, 1242 posts, RR: 20
Reply 10, posted (10 years 4 months 3 weeks 3 days 17 hours ago) and read 2415 times:

Well of course everyone knows US is a monopoly in PHL. Brought to you by the city of Philadelphia, they have always stayed by US, can you say payoffs, Government Cheese. The city has done the same thing for Comcast which of course has come from the Philly region and they are the only choice here. See thats the way the Government is even though monopolies are illegal, they dont care cause they are above us and as long as everyone is getting thier kickbacks everything is good.

User currently offlineJhooper From United States of America, joined Dec 2001, 6204 posts, RR: 12
Reply 11, posted (10 years 4 months 3 weeks 3 days 17 hours ago) and read 2376 times:

It appears as though officials have determined that the so-called "hub premium" is a legitmate cost of doing business rather than monopolistic behavior.

Simply put, the federal courts believe that, as long as an airline doesn't price its seats below it marginal cost, then an airline is never guilty of anti-competitive behavior.


Absolutely correct. I don't believe there has ever been a successful prosecution along these lines.



Last year 1,944 New Yorkers saw something and said something.
User currently offlineJafa From United States of America, joined Aug 2003, 782 posts, RR: 4
Reply 12, posted (10 years 4 months 3 weeks 3 days 16 hours ago) and read 2359 times:

Kudos to 767 lover for starting an intelligent topic!!!!
Its invalid to say that NW controls DTW. I believe the firgure for O&D traffic was about 50%. Someone correct me if I am wrong. Yes, NW has the most flights and carries the most passengers, but the majority of those people are just changing planes. They aren't originating or ending thier trip in DTW.
People living here have many choices to get to thier destinations. As far as a hub premium, we could argue for or against. But shouldn't a choice of multiple non-stop flights cost a little more than a connection or multistop trip.


User currently offlineCory6188 From United States of America, joined Feb 2004, 2686 posts, RR: 6
Reply 13, posted (10 years 4 months 3 weeks 3 days 16 hours ago) and read 2352 times:

Considering the AA and NJ case at DFW, is it possible that CO could be sued because of their actions against ATA on EWR-SFO, running them out of the route?

User currently offline767Lover From , joined Dec 1969, posts, RR:
Reply 14, posted (10 years 4 months 3 weeks 3 days 16 hours ago) and read 2317 times:

Re: the comments as to "why isn't Coca-Cola, Burger King etc a monopoly then either?"

There's nothing stopping another burger joint owner from opening a restaurant down the street from Burger King. And nothing stopping anyone from selling another cola brand in ATL.

I brought up the question re: airlines because there is a barrier to entry in terms of gates/slots at airports. If there are only a certain number of gates, and one player dominates most of them, it's pretty difficult for anyone else to come in and have any meaningful chance.

Whereas with virtually any other type of business, there is no such barrier. (and even if all the real estate surrounding an existing Burger King is already owned, there's nothing stopping another burger joint owner from buying/leasing space from the hair salon owner down the street.)

[Edited 2004-03-31 23:22:40]

User currently offlineSlamClick From United States of America, joined Nov 2003, 10062 posts, RR: 68
Reply 15, posted (10 years 4 months 3 weeks 3 days 16 hours ago) and read 2294 times:

Since when is being a monopoly a problem?

Exxon and Mobil are allowed to merge. United and USAIRWAYS are not because, despite their being in chapter 11 that would have been a monopoly.




Happiness is not seeing another trite Ste. Maarten photo all week long.
User currently offlineMcmahonsmr From United States of America, joined Dec 2000, 318 posts, RR: 0
Reply 16, posted (10 years 4 months 3 weeks 3 days 15 hours ago) and read 2238 times:

Basically the FTC Act and the Sherman Act prohibit two things -

1. Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce amomng the several States, or with foreign nations, is . . . declared to be illegal.

2. Every person who shall monopolise, or attempt to monopolise, or combine or conspire with any other person or persons, to monopolise any part of the trade or commerce . . .

The Europeans take a very similar approach under 81 and 82 of TEU, except they use the "abuse of a dominant position" phrase.

If a court, or the FTC, were to evaluate whether or not hub cities constitute monopolies they are going to undertake an industry analysis looking at the entire industry. The FTC has long been looking after the airlines and their price fixing potential.

If you had a similar Ryanair example in the USA where they were getting concessions for using airports, you might want to be careful so that this would not be seen as a contract in restraint of trade.

On the monopoly issue - the only place you are going to see "monopoly" tendencies is on O&D routes.

In fact, I would argue that hubs, are pro-competitive - in the sense that they encourage routing through that hub. They permit prices to be maintained at a competitve level.

Hope this helps.

MCMAHONSMR


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