|Cato Policy Analysis No. 441||June 4, 2002|
by James V. DeLong
James V. DeLong is a senior fellow with the Competitive Enterprise Institute's Project on Technology and Innovation.
Orbitz, which sells airline tickets to travelers over the Internet, is owned by 5 major airlines and affiliated with 30 more. Its charter requires it to display flight and fare information in an unbiased manner, sorted only by price, number of stops, length of trip, and other basic criteria.
Despite the fact that Orbitz has plenty of competition, other players in the industry have trotted out antitrust arguments to try to keep it from operating or cripple it with regulations. The intensity of the assault should set off alarms, because it is simply the latest example of antitrust being used to suppress competition rather than to promote it.
Orbitz was created because the founding airlines have a strong interest in fostering sources of comprehensive, unbiased information on schedules, fares, and seat availability. Improved information will decrease airline operating costs and promote their interest in filling as many seats as possible. Orbitz is also introducing new software for booking reservations. This will introduce competition and reduce fees in a part of the industry that now derives market power from government regulation. It will also restructure the industry to reflect the new economic realities of the Internet.
The antitrust attack on Orbitz is highly technical and is directed at provisions of the charter that require the participating airlines to provide Orbitz with all fares that they make publicly available, which is alleged to create excessive power over ticket selling. Another cause of antitrust concern is that Orbitz might in some fashion enable airlines to coordinate, and raise, their fares.
Neither charge is valid. The charter provisions that are drawing fire are necessary to the creation of an unbiased information source. The real motivation of most opponents is their vested interest in the status quo.
The seriousness with which the attack is being taken by the government, the press, and the public illustrates a general failing of contemporary antitrust regulation. Antitrust enjoys an excellent image, primarily because of the belief that it protects consumers. But in practice, the energy behind antitrust policy often comes from firms that are threatened by new arrangements. Pressure from such firms is skewing antitrust policy into a series of efforts to suppress innovation for the benefit of industry incumbents and to the detriment of consumers.
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© 2002 The Cato Institute
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