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mr_monopoly

The Justice Department recently filed a suit to block a  merger between bankrupt American Airlines and U.S. Airways.   The complaint states that “competition” is threatened because America will have only 5 major carries, down from nine since 2005.   It states that American Airlines will lose their advantage fairs and it makes other arguments about declining consumer benefits in the industry.

This raises several interesting questions about economics, questions that lawyers tend to know very little about.

Brace yourselves, this is not a  typical short post.   Business lawyers need to be familiar with economic arguments too.  And selfishly,  I hope we influence policies that stray away from laws that produce more harm than good, and not just enforce them because it’s our “job”.  Regardless of what law professors in academia tend to believe (my apologies to my professors).   Because if we really think about it, don’t we need to study if the laws we initiate are harmful…and um, if they actually work?  I believe we should.

First, there have been several negative effects of antitrust laws.  Mainly to consumers.  You know, the ones the bills were designed to protect.   That highlights an important point I made above–the bills are designed by lawyers who don’t have a firm grasp of markets.   Those antitrust laws have conflicting case law, ambiguous and often murky statutes with what conduct are permissible for companies.  Not to mention non-objective.

Second, the negative effects outweigh any positive outcomes.  What’s the result going to be with the U.S Airways merger if it’s stopped?  American Airlines continued failure to run a successful operation? Continued failure of services and customer satisfaction?   They aren’t in bankruptcy for nothing.

Would it be any different if they failed tomorrow and then sold off their assets?  Who would buy them? Other airliners, or scrap dealers to break down airplanes parts for cash.   So, there’s still five major airlines instead of six.  The outcome remains the same only with negative output along the way via antitrust litigation.  You have government dictating actions of private property, somehow turning it into a form of quasi “public” property.

For private company actions don’t truly wield the power to exclude new market participants, only discourage them (lower fairs, marketing, quality improvements, innovation, etc.)  Special favor legislation and regulation accomplish the ability to exclude however.  Again, hurting the consumer.   Who then makes the purchase decisions, the consumer or the antitrust office?

Finally, and more philosophically, proponents of antitrust laws speak in defense of antitrust laws, ad nauseam, about the papa of  laissez faire, Adam Smith, and his most famous book written over two centuries ago entitled “The Wealth of Nations.”  In it, Smith eloquently states:  “people of the same trade seldom meet together . . . but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.”  Oddly, antitrust advocates appear to ignore Smith’s next sentence:  “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.”

No one expects the world to be perfect and free of corruption, but lawyers often fail to examine the negative effects of laws, only enforcing them on the government side, and trying to find a way to get around it on the private side.  This usually involves politically connected favors for companies to crowd out competition anyways.   The exact opposite of the “competition” focus the Antitrust department supposedly advances (See the founding of Southwest Airlines as an example of the years of legal battles attempting to prevent their business from entering the market).   So which is it, more competition or less?

It’s up to the future lawyers to engage these policy issues.  Understanding economic arguments, for or against antitrust laws, is a must.  And I’m sure lawyers can find a way to debate it somehow…

 

*Views expressed in this post are not representative of the views or membership of the Business Law Network, but the individual’s own opinion and research.

 

Ready for the $1,000+ an Hour Partner?

Apr
14
Author: Cory Ferraez

The Wall Street Journal Blog recently reported the increase of the $1,000+ partner per hour client fee.   But the report noted that although rates have increased, firms on average are earning fewer cents on the dollar.  Why?  Clients are demanding discounts and the clients argue rightfully so.  In some cases, 20-30% off a firm’s usual rate.

Don’t forget lawyers, especially in a down economy, the consumer (aka, your clients) determine the prices based on what they will pay for your services, and makes us–large firm to solo firm–compete for their business.

Thanks to law.com and Vivia Chen at the Careerist for the article: Ready for the $1,000+ an Hour Partner?