REVIVING ANTITRUST ENFORCEMENT IN THE AIRLINE INDUSTRY.

• Author: Edelman, Jonathan

TABLE OF CONTENTS INTRODUCTION I. OVERVIEW OF THE ANTITRUST REGULATORY STRUCTURE OF AIRLINES A. Overview of Antitrust Law B. Antitrust Enforcement Within the Airline Industry C. Overview of the Airline Industry and Common Ownership II. SOURCES OF ANTITRUST AGENCIES' RELUCTANCE TO ADDRESS COMMON OWNERSHIP A. Limits of the Sherman and Clayton Acts B. "Unfair Methods of Competition" C. History of the DOT's Approach to Antitrust Enforcement 1. CRS Rules 2. Predatory Pricing Policy III. SECTION 41 L'S ABILITY TO REDUCE HARMS FROM COMMON OWNERSHIP A. The DOT's Authority to Promulgate Notice-and Comment Rules for Common Ownership B. How the Market-Share Rule Appropriately Addresses Common Ownership of Airlines C. The DOT Is the Right Agency to Enact the Market-Share Rule CONCLUSION INTRODUCTION

Much ink has been spilled on how airline mergers have affected competition. (1) Mergers have cut major carriers nearly in half over the past two decades. From Southwest-Air Tran and Delta-Northwest to United-Continental and American-US Airways, mergers have increased travel costs and reduced travelers' options. (2) But airline mergers only tell part of the story. Despite their far-reaching impact, less has been written about how mergers of financial institutions affect the airline industry. When financial institutions BlackRock and BGI merged, ticket prices increased by 0.5% across the industry. (3) New research on that merger and others has brought to light the investment practice of "common ownership," which involves investors owning large shares of stock in multiple rival companies. Common ownership stifles market competition, particularly in the airline industry.

Common ownership has exploded across the economy over the past two decades. (4) In 2000, institutional investors (5) were the largest owners of 25% of the companies listed on the S&P 500 index; by 2017, that number was up to 90%. (6) By 2010, over half of American public companies had large portions of their stock held by common owners, up from 10% in 1980. (7) Furthermore, common ownership appears to have increased prices for consumers across several industries--including banking, tech, pharmacy retail, and air travel. (8) The practice may be costing consumers and society over $60 billion, representing a significant transfer of wealth from consumers to upper-class investors. (9) But the rise of common ownership has not persuaded regulators to act. Fearful of harming financial markets and overstepping their legal authority, regulators have responded only by calling for further research. (10)

This Note proposes a solution to these concerns. As the larger antitrust agencies--the Department of Justice (DOJ) and the Federal Trade Commission (FTC)--continue to sit on the sidelines, the Department of Transportation (DOT) can and should take action against common ownership. By regulating common ownership of airlines under the broad antitrust jurisdiction of the DOT, federal authorities can enact a workable solution without putting financial markets at risk, all while grounding that regulation in clear legal authority. This will require that the DOT go beyond usual antitrust regulation and embrace its broad legal mandate to prevent methods of unfair competition. In doing so, the DOT could pave the way both for other agencies to regulate common ownership across the economy and for the DOT itself to engage in farther-reaching antitrust enforcement that fulfills its statutory mandate.

The DOT's regulation of common ownership and other anticompetitive practices may affect not only how the airline industry might function but also how the economy as a whole distributes income and wealth. (11) As the United States creeps toward its highest levels of economic inequality in a century, (12) policymakers, politicians, and activists have started to identify ineffective antitrust laws as one cause of that inequality. (13) But their proposed remedies tend to focus solely on using the DOJ and the FTC to strengthen merger enforcement and break up monopolies. (14) Less attention has been paid to how antitrust law can more effectively check anticompetitive practices, and less still to where industry-specific agencies like the DOT fit in. By considering the DOT's potential for stronger enforcement, this Note paves the way for more effective antitrust regulation across the economy.

Part I introduces background concepts in antitrust law, airline-specific antitrust law, and the airline industry's competitive landscape--including the presence of common ownership. Part II explains how antitrust law may prevent the larger antitrust agencies from issuing proactive regulations on common ownership, as well as how historical practice has caused antitrust practitioners to overlook the DOT's potential role in antitrust enforcement. Part III proposes that the DOT use its authority to combat common ownership and shows why the DOT should take a more active role in regulating anticompetitive business practices in the airline industry.

1. OVERVIEW OF THE ANTITRUST REGULATORY STRUCTURE OF AIRLINES

   This Part provides an overview of the airline industry and the legal structure governing competition within the industry. Section I.A briefly summarizes antitrust law generally. Section I.B describes the specific structure of antitrust regulation of airlines. Section I.C explains the main competitive features of the airline industry, including common ownership and its application to airlines.

   1. Overview of Antitrust Law

      Antitrust law allows government regulators and private parties to restrict company behavior that produces monopolies or otherwise interferes with competitive markets. (15) Most antitrust enforcement comes from two agencies: the DOJ and the FTC. (16) The DOJ's antitrust jurisdiction stems from two industrialization-era statutes, the Sherman Act and the Clayton Act. (17) The Sherman Act contains two main sections that provide a broad outline of antitrust law: section 1 prohibits anticompetitive agreements and mergers, (18) while section 2 prohibits anticompetitive behavior by a single company. (19) The Clayton Act provides mechanisms for enforcing the Sherman Act, including provisions for treble damages, prohibitions on stock acquisition, and regulatory review of mergers. (20)

      The exact scope of the Sherman and Clayton Acts is often in dispute. Though it is clear that the Acts apply when business conduct directly and immediately raises prices, judges and practitioners often disagree on their applicability when the conduct has an attenuated effect on competition, affects outcomes outside of price, or stems from interrelated markets. (21) This Note will not attempt to resolve that disagreement, but it will consider how federal enforcement agencies respond when it is not clear whether the Acts cover certain business practices. This Note refers to this liminal space as the "boundaries" of the Sherman and Clayton Acts, where DOJ jurisdiction is disputed.

      The FTC's jurisdiction over antitrust stems from section 5 of the Federal Trade Commission Act (FTC Act), another century-old statute that allows the FTC to prohibit "unfair methods of competition." (22) The FTC's antitrust enforcement authority under section 5 is at least as broad as the DOJ's authority under the Sherman and Clayton Acts. (23) Section 5 also gives the FTC authority over consumer protection (24) as well as some antitrust issues not covered by the Sherman and Clayton Acts, though exactly which issues are covered is not clearly defined. (25)

   2. Antitrust Enforcement Within the Airline Industry

      As explained above, the DOJ and the FTC jointly enforce federal antitrust laws in most industries. But because the DOT is broadly responsible for regulating air travel, the DOT enforces the antitrust laws in the airline industry, not the FTC. (26) The role of these agencies has changed significantly over time. This Section focuses on the source and scope of the DOT's authority.

      The airline industry went from strict federal control to relatively lax regulation in the late twentieth century. Airlines used to be tightly regulated: the Civil Aeronautics Board (CAB) had broad authority to set airline routes and prices for airlines, which effectively capped the number of airlines that could stay in business. (27) But in 1978, Congress removed most government controls over prices and routes with the Airline Deregulation Act. (28) Upon the CAB's disbandment in 1985, its powers to monitor anticompetitive practices and mergers, as well as its consumer protection authorities, were transferred to the DOT. (29) The DOT ceded jurisdiction of mergers to the DOJ in 1989 after the DOT was criticized for rubber-stamping merger applications. (30)

      The DOT's jurisdiction over airline competition comes from section 411(a) of the Federal Aviation Act. That statute allows the DOT to "investigate and decide whether an air carrier, foreign air carrier, or ticket agent has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation." (31) Section 411(a) is nearly identical in language to section 5 of the FTC Act. Accordingly, the DOT's competition authority has been interpreted together with that of the FTC. (32)

   3. Overview of the Airline Industry and Common Ownership

      Antitrust law works by tailoring regulations to the competitive nature of each specific market. (33) This Section covers three aspects of the U.S. airline industry that structure competition: oligopoly, differentiation between low-cost and legacy carriers, and common ownership. Exploring these features reveals how firms interact with each other and consumers and leads to a better understanding of how antitrust enforcement can and cannot protect consumers from anticompetitive practices.

      First, the airline industry is an oligopoly. (34) In an oligopoly, the market is dominated by a small number of firms. (35) Firms...