ICLE and Brian Albrecht on US v American Airlines
Law360 – An ICLE amicus brief was cited by Law360 in a story about the U.S. Justice Department’s challenge of the proposed alliance between American Airlines and JetBlue. You can read full piece here.
The Chamber and the International Center for Law & Economics both argued in their proposed briefs that U.S. District Judge Leo T. Sorokin should have fully weighed the benefits and harms posed by the NEA, under the so-called rule of reason analysis, instead of siding with the U.S. Department of Justice‘s Massachusetts federal court lawsuit under a truncated “quick look.”
…ICLE, backed by a quintet of antitrust scholars, most from George Mason University, and the Chamber sought broadly to defend joint ventures they argued have important pro-competitive benefits and that should not be considered mergers between direct horizontal competitors.
“The opinion’s merger-like view of the regional collaboration ignored or downplayed important distinctions between the NEA’s operation and those of a national merger of competitors, not the least of which was that American and JetBlue maintained independent pricing,” ICLE said. “More generally, the NEA is structured like the archetypical limited joint venture, including (1) a fixed scope and duration, (2) no asset transfer, (3) no price coordination, and (4) separate management and business strategies, even in the NEA’s market.”
…Backing American’s appeal Wednesday, ICLE and the academics argued the judge wrongly held that the simple reduction in the number of competitors in a space by one is a “fatal (and illegal) reduction in competition.”
“Economics and binding precedent caution that static market shares and a mere reduction in the number of competitors do not constitute a basis for condemnation absent proof that prices increased, output decreased, or quality suffered,” ICLE said.
The think tank spent much of the brief touting the benefits of joint ventures it and the Chamber said can help smaller players compete against larger firms. This particular joint venture, ICLE said, increased capacity at NEA airports by over 200%, added nearly 50 new nonstop routes, improved frequency of over 130 routes and improved capacity on 45 New York City flights.
“But the opinion rejected all of these procompetitive, consumer-friendly benefits because, in its view, they were the result of the ‘unlawful’ reduction of competitors by one. The opinion’s rejection of these benefits was erroneous and in contravention to settled authority,” ICLE said.
ICLE’s chief economist, Brian Albrecht, said in an email that even if the underlying decision was the right one, “the reasoning matters because that’s what sets the precedent for the next case.”
“First, the court confused competition with the number of competitors. Tallying rivals says nothing about real competition and consumer impact. Yet, the opinion keeps going back to the idea that the joint venture removes a competitor. Every merger or joint venture does that to some extent. That can’t be enough for it to be illegal,” Albrecht said. “Second, the court mishandled this limited joint venture, wrongly analyzing it as an outright merger in much of the decision. There are aspects that are merger-like, but the courts have made clear that joint ventures are less likely to be anticompetitive compared to mergers.”