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Journal of Air Law and Commerce

Abstract

This article addresses four fundamental questions:

1. If joint ventures and, particularly, metal-neutral joint ventures produce significant benefits for consumers, then why not grant them antitrust immunity while subjecting them to periodic reviews that ensure benefits continue to materialize and exceed the potential costs of lessening competition?

2. Alternatively, why not grant antitrust immunity to a joint venture with a time limit and subject it to another review on whether the immunity should be extended for another fixed period of time?

3. Or, why not attach conditions other than carve-outs to any immunized joint ventures?

4. Finally, should immunity have been granted in the first place?

In granting immunity, the U.S. Department of Transportation (DOT) and its counterparts in other countries faced the classic type I and type II errors in decision-making. By not granting immunity, the DOT risked preventing joint ventures that might have net positive effects for consumers—a type II error. On the other hand, when granting immunity, the DOT risked approving joint ventures that might have net negative effects—a type I error. Which error is more critical, and more likely? Antitrust immunity never made sense, even for so-called public policy purposes. Alliances did not spare major U.S. airlines from bankruptcy. There were frequent “open skies” agreements even without antitrust immunity.

It is unlikely that the joint ventures’ efficiency benefits and antitrust immunity goal to encourage metal-neutrality have materialized. The regulators never thought about integration problems, competing goals, and different corporate cultures. Hence, it is unlikely that joint ventures’ efficiency benefits counteracted anticompetitive effects.

In examining the potential anticompetitive impacts, the regulators did not fully appreciate the potential for restrictive trade practices—such as market foreclosure, switching costs, and access to hubs (e.g., slots, gates, check-in counters)—and the possibility of lessening competition in markets beyond countries or continents covered by the immunity. The European Commission (EC) and the DOT did note the potential for market foreclosure. Even though they acknowledged this possibility, market foreclosure did not influence their decisions because there was no evidence at the time of the proposed joint venture causing market foreclosure. Evidence became available years after the opportunity to observe joint ventures’ operations and competitive behavior. Time limits for antitrust immunity and periodic reviews are thus warranted.

Therefore, governments should administer mandatory interlining, open access to frequent flyer programs, and time limits on antitrust immunity. While these recommendations do not guarantee flourishing competition in many international markets, they are critical for creating equal opportunity.

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