DOJ Investigation Began in 1991Settled by Consent Decree in 1994

Never Went to Trial

Central clearinghouse for dissemination of fare change information

Airlines send information to ATPCO daily◦ New fares added◦ Old fares removed◦ Existing fares changed

ATPCO sends compilation to ◦ Computer reservation systems (CRS)

Available to travel agents and consumers◦ All major airlines

Fare basis code or “name” of fare Origin and destination airports Price First and last ticket dates First and last travel dates Restrictions

◦ Advance purchase◦ Minimum stay◦ Blackout dates◦ Specific routing or set of flights

By setting a future first ticket date, an airline could announce a fare increase, but delay its implementation.

“Pre-announcement” of price changes Ticket and travel dates as well as restrictions

were submitted as footnotes to the fare. “Footnote designators” are names for

footnotes submitted by airlines Fare basis codes and footnote designators

could be used as a means of communication

Filed charges against ATPCO and 8 airlines Airlines used ATPCO to collude to raise prices

and restrict competition Data from ATPCO records and airlines’

internal documents◦ One carrier announces fare increase on future date◦ Other carriers announce increases on same route,

often at a different fares◦ Iterated back and forth until all charge same fare

on same date◦ When “agreement” was not reached, fare increase

did not go into effect

Suppose Middle Tennessee Airlines has a hub at Nashville and offers non-stop flight to New Orleans and Chicago

Mid-South Airlines has a hub at Atlanta offering non-stop flights to New Orleans and Chicago

Both also operate flights on the Atlanta-Nashville route

Each offers one-stop service in competition with the other’s non-stop flights

Suppose MTA is unhappy with MSA’s Atlanta to Chicago fare◦ MTA cuts its Nashville to New Orleans fare with a short

last ticket date below that offered by MSA using a basis code similar to MSA’s for Atlanta-Chicago

◦ MTA then matches MSA’s Nashville-New Orleans fare with a first ticket date the same as the previous last ticket date

If MSA gets the message, ◦ it ends its cheap Atlanta-Chicago fare and matches

MTA’s fare on that route ◦ with a first ticket date that is the same as MTA’s last

ticket date on the cheap Nashville-New Orleans fare Result: each carriers’ one-stop fare matches the

other’s non-stop fare

Not a per se violation of Sherman Act◦ Consumers benefit from fare info

Evidence: Bookings surge near end of sale, fall shortly after fare increases

◦ Court should use a rule of reason standard All firms respond to actions of competitors

◦ DOJ allegations indistinguishable from competition Pre-announcement also occurred on monopoly

routes where collusion is irrelevant No pre-announcement of price decreases

◦ Decreases are more destabilizing to cartel behavior Basis codes and designators not used to signal

connections between fares Unknown number of seats available for any fare Low profits, frequency of exit implies any price-

fixing is not effective at raising profits

Consumer benefits small in comparison to opportunity to coordinate prices◦ Surges occurred only on a few well-publicized

occasions, not those with multiple end-date changes◦ Pre-announcement on monopoly routes shows some

value to consumers Pre-announcement of fare decreases were

avoided because of likely antitrust problems Remaining seat availability for a fare is known,

even if total number of seats is not Profits not relevant, collusion may raise profits

(reduce losses) even when firms still lose money

When DOJ filed its case, it also filed a settlement with two airlines◦ United and USAir◦ Agreed to stop pre-announcement of fares

Tunney Act: Court must review government antitrust settlements ◦ Other airlines opposed◦ DOJ said harm to conspiracy only reason to oppose◦ Court accepted settlement

March 17, 1994 final settlement ◦ No restrictions on fares, but no pre-announcement◦ No linking with codes or designators◦ Expires in 10 years (2004)

Airlines announce fare increases on Friday afternoon effective Saturday

Traffic is low on weekends; few tickets sold If competitors do not match by Sunday

afternoon, ◦ Increase is withdrawn Sunday night◦ Old fare in effect Monday morning

If competitors match the increase, the higher fare remains in effect

Did not go to trial ◦ no court decision or order◦ no antitrust precedent was created

Signaled the DOJ’s willingness to pursue coordinated prices made possible by rapid communication

In Economic terms, the airlines’ use of ATPCO was a facilitating practice

Still not clear if this was evidence of conspiracy (per se violation) or an illegal practice under rule of reason