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Friday, August 23, 2013

U.S. Justice Department Opposes American-US Air Merger: Justice as Fairness?

After a decade of “rapid consolidation” in the U.S. airline industry, the U.S. Department of Justice filed a lawsuit in mid-2013 to block the proposed merger between American Airlines and US Airlines. The question I investigate here is whether the government’s opposition to this merger is fair to the stockholders and employees (including managers) of the two airlines. Given the undoubted proliferation of empirical studies on the probable impacts of the merger on the industry (e.g., competition), the ethical question of justice as fairness may have slipped between the cracks.

At the time, the merger was expected to create the world’s largest airline, not to mention the largest American (or US) airline. Even though the government had blocked the merger of AT&T and T-Mobile two years earlier and forced Anheuser-Busch InBev to significantly change the terms of its takeover of the brewer of Corona earlier in 2013, the New York Times characterized the antitrust division of the U.S. Justice Department as having “a newly aggressive approach.”[1] The division had allowed a “nearly unfettered run of mergers in recent years.”2] Even the regulators were on board.
                                                  Should these two airlines merge?   Image Source: NYT
Beginning in 2008—the year of the financial crisis—the Justice department approved the mergers of Delta and Northwest, United and Continental, and Southwest and AirTran. “While those mergers helped the industry return to profitability and brought more stability, they also led to higher fares, regulators said. A union between American and US Airways would take the consolidation too far, . . . hurting consumers and leading to substantially less competition and higher airfares and fees, and to less service to many airports.”[3] Eric Holder, the U.S. Attorney General, said his department was determined to ensure “robust competition in the marketplace.”[4]
According to the Justice Department, the merger would result in four airlines controlling more than 80 percent of the U.S. market for commercial air travel. Whether there has been much real competition in what may actually be oligarchic markets in the U.S. is a question for another day. Here, the question is whether being the last in line, reaching the counter just after closing, is fair. Of course, the analogy breaks down in part because American and US Airways did not have to wait for the other mergers to have been approved. The question, better stated, is whether being the merger likely to reduce competition below a threshold is fair to the owners and employees of the two airlines, given the fact that the Justice Department had approved other mergers in the industry in the preceding five years.
That the “vast majority of domestic airline routes were already highly concentrated” suggests that maybe the Justice Department should not have gone on a sort of spending spree in allowing all of the preceding mergers.[5] Put another way, if the overwhelming number of existing routes were already highly consolidated, why all of a sudden was another merger too much due to its impact on competition? Is there much competition in a highly concentrated market? If not, then why didn’t the government draw the line earlier, opposing one or two of the earlier mergers? Robert Mann, a former airline executive, has characterized the Justice Department as “late to the game with concerns over airline industry consolidation.”[6] Given that American sought the merger to avoid bankruptcy, should the stockholders and employees of American as well as US Airways suffer from the government hitting the brakes because it had been speeding?
On the other hand, consequentially speaking, the proposed merger was expected to harm consumers, perhaps even more than the previous mergers had. The consequences of the last guy putting a card on top of a house of cards are very different than the preceding consequences—hence the last guy. In this sense, having a threshold of risk makes sense. The risk to competition had become too great, even if this was due to the preceding mergers. That the government should probably have raised the hurdles higher for those mergers does not mean that government should stand aside as consumers have to pay “hundreds and hundreds of millions of dollars” more as a result of the proposed merger, according to William Baer, the assistant U.S. attorney general in charge of the anti-trust division.[7]
Who should pay—the consumers or the stockholders and employees of American and US Airways? Is there a third option that is not averse to the financial interests of any of these groups? If not, who should pay? If the airline industry was already heavily consolidated, presumably at the expense of competition, implementing Holder’s aim would entail going beyond disapproving the proposed merger to pro-actively break up all of the existing major airlines based in the United States. The airlines coming out of such an act would have different ownerships as well as managements and boards of directors. All of the mega-airlines would be treated the same in being broken into two or three airlines each.

1.  Jad Mouawad, “U.S., Filing Suit, Moves to Block Airline Merger,” The New York Times, August 13, 2013.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.

Sunday, August 18, 2013

Rousseau on Inequalities in Society: An Instance of Kantian Enlightenment?

Kant defines enlightenment as “man's emergence from his inability to use one's own understanding without the guidance of another.”[1] By making public use, Kant means “that use which anyone may make of it as a man of learning addressing the entire reading public."[2] By sufficient freedom, Kant has in mind that the ideas that threaten the power of the guardians or institutional/societal rules are not barred.  

For example, an enlightened Roman Catholic priest would publish ideas questioning and even criticizing Church dogma when he is acting as a scholar, even though he would fulfill his duty in his conduct as a priest by defending those very teachings. A priest could thus go public as a heretic as long as he does so on his own time as a scholar and member of society, and an enlightened bishop would tolerate the scholar’s freedom to think and publish outside the box.
                                                                                       Image Source: builddiscipline.com
Rousseau would object to Kant’s prescription for how to become enlightened and Kant would object in turn to Rousseau's preference for the state of nature over society and the associated expansion of reasoning. Does Rousseau fit Kant's concept of enlightenment even though Kant would object to some of Rousseau's ideas? 

To read the entire essay, including whether Kant would have to admit that his notion of enlightenment applies to Rousseau, please click on "Rousseau as Enlightened?"

1. Immanuel Kant, AnAnswer to the Question: What is Enlightenment? (World ebook Library).
2. Ibid.