TCS Daily


Say Yes to Price Fixing

By John E. Tamny - September 21, 2007 12:00 AM

The U.S. Justice Department recently fined British Airways (BA) and Korean Air $300 million apiece after they acknowledged price fixing on international flights. With rising fuel prices cutting into their profit margins, the airlines admitted to collusion with rivals over cargo rates and fuel surcharges.

As it turns out, the cooperation of both airlines saved each from fines double or triple the recorded amount. Perhaps relieved by the relatively small number, BA CEO Willie Walsh strongly denounced his firm's conduct, saying, "Any anti-competitive behavior is to be condemned at British Airways or at other companies."

But was their behavior anti-competitive? Just last week Southwest Airlines announced fare increases of as much as $10 each way due to rising fuel costs. The Associated Press account of Southwest's decision noted that, "It was the low-cost carrier's fourth fare increase this year, and other airlines quickly followed suit (emphasis mine)."

Southwest's successful maneuver to increase fares raises the question of whether BA and Korean Air did anything different from Southwest. The latter merely used a press release to get its competitors to fall in line in terms of pricing, while the former entities simply got together and agreed on price changes. Though the effect was the same, BA and Korean Air were fined substantially while Southwest went about its business free of legal hassles.

Rather than anti-competitive behavior, it could just as easily be said that price-fixing is merely a harsh euphemism for competition. If a town had one car mechanic, wouldn't the arrival of second mechanic be an explicit signal to the first that his prices must remain competitive in order to stay in business? Assuming equality of skills, there would be natural price collusion that would occur free of both mechanics meeting in secret. They wouldn't need to for the certainty that their customers would relay to each the prices that both charge, and both would eventually adjust to stay competitive.

ExxonMobil gas station owners don't meet in secret with their counterparts at British Petroleum stations to agree on prices. They don't because they don't need to. By posting price signs in front of their gas stations, they're communicating to each other the prices that will move their respective inventories. If one station chooses to raise prices, the other will presumably respond in kind. There would be no secret communication needed, but if a third competitor, say a Chevron station, communicates a lower price with the aforementioned signage, the ExxonMobil and BP stations will have a decision to make.

When we consider falling consumer prices, the same legal collusion occurs. Early adopters of mobile phones paid far more for monthly minutes than they do today. AT&T, Verizon and T-Mobile didn't get together and agree on lower prices, but in advertizing their lower monthly charges, they regularly communicated to each other the general direction of rates. From wireless firms to carmakers to computer manufacturers, all manner of industries regularly announce prices to consumers, which is the same as communicating their pricing plans to competitors.

Interestingly enough, back in 2004 memory-chip makers including Samsung, Micron and Infineon faced criminal charges for colluding on chip prices; this despite the fact that the latter had been falling for years. If they made a mistake, it was in gathering to communicate price levels when in reality all they had to do was communicate through their respective customers.

Some might say that collusion in secret between an industry's biggest players would still hurt consumers despite all the evidence, but even there market history tells us otherwise. Indeed, one way around charges of collusion is for companies to merge.

In 2004, Blockbuster Video attempted to purchase Hollywood Video, but backed off due to anti-trust concerns. Movie Gallery wound up purchasing the former, but as we all now know, the gales of creative destruction hit the video industry in the form of Netflix; with Blockbuster and Movie Gallery both presently struggling to stay afloat. Assuming companies collude in ways inimical to consumers, be it explicitly or implicitly or through consolidation, they simply create an opportunity for an unknown competitor to enter the market and knock them down.

For regulators and government officials to try and draw a comparison between the actions of Southwest Airlines versus BA and Korean Air in regard to pricing is to make a distinction without a difference. As opposed to a method that companies use to maintain prices higher than the market will bear, price fixing is in the end a process by which businesses compete with each other. As such, regulations meant to keep this from occurring in private mean businesses will do the very same thing; albeit out in the open.

John Tamny is the editor of RealClearMarkets. He can be reached at jtamny@realclearmarkets.com


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76 Comments

One fixing is in private (BAD) - the other "fixing" is public
A HUGE key difference here is that what BA and Korean Air did was in private. They explicitly got together and fixed prices and let EACH other know their plans, and reactions to each other's moves.

In the other cases where the competitors find out about the new prices when consumers do, the competitors don't KNOW for sure what is the pricing strategy. They are not getting together to carve up the market.

Of course, when companies put out their prices to either individual consumers or business consumers, their competitors will end up knowing their current prices. BUT they won't know their overall pricing STRATEGY.

Also the company that is doing the price change (either up or down) doesn't know for sure whether their competitors will follow their lead or not. There is a large risk in their pricing move. If the companies are sitting around a table and getting together on their pricing strategy, the risk is taken out of their decision.

Price FIXING in private is anti-competitive. Letting the market (consumers and competitors) know your prices is just business. Big difference.

Price matching bad too?
How many companies will meet and maybe beat any advertised price?

As for the airlines, the entire market is rigged, controlled by governments, international, federal, state and local. I am surprised any airline would want to stay in business when it has so little control of where it can fly, when it can fly or how much they can charge.

If any market was truly open, secret price fixing could not last long.

got your mind on ideology and head in the sand
Marjon, what makes you think the airlines are so heavily regulated? They were de-regulated in 1978. It became much easier for an airline to open new routes and charge whatever they want after that law was passed. The things you're whining about are exactly why de-regulation was instituted. It seemed to be going pretty well until somewhat recently, now we have cases of people being stuck on the tarmac for several hours, lost luggage and delays, primarily caused by too many flights for the system to handle, is now causing people to discuss bringing back some regulation to fix things. The FAA needs another billion dollars in its budget to be able to upgrade its flight control towers, to handle the current flights and to allow the airlines to add more. Maybe the airlines should foot that bill.

The airlines don't charge enough for flights, thats the bottom line. Demand goes up, price goes up, isn't that how economics works? No one is controlling the price of tickets to fly except the airlines themselves.

You say international, federal, state and local governments control the airlines. In what ways? And where do you draw the line between safety concerns and a truly free market.
And please don't explain some BS about how a truly free market would automatically create safety. Free markets are not infallible, you would be well served to accept that fact. For example, you've got to be kidding that secret price fixing would not last long in a truly open market. That makes zero sense. Chances are higher that secret price fixing would become the norm, because it would become acceptable, because it would lower risk and allow multiple companies to work like a conglomerate and set prices to whatever profit they deem desirable. Sure, an upstart could try to come in and undercut the set price, but do you really think thats so easy to do? They would have the weight of the conglomerate working against them, and in a truly open market the tactics the conglomerate could use would be much greater. They could essentially close the market to new competition through supplier pressure and having access to much greater resources. Thats more likely to happen than the euphoric vision you have of how a free market operates.

De-regulation is a relative phrase only.
Ever heard of the FAA? Did it go out of existence when I wasn't looking? Gee, my brother, who is a commercial airlines pilot, didn't tell me about that.

The "euphoric vision of how free markets work" is correct, but it is NOT implemented because we don't HAVE a free market.

Geez, will you and your kind just grow the hell up? Your silly, immature fears of how people just want to screw each other over, and would given the chance, show nothing except your own twisted psychology. Cleary, YOU would try to engage in secret price collusions, and YOU would soon be put out of business. Hyprocrite.

wow, what a dense article. collusion does not equal competition.
This article is like a fireman asking a person running out of a burning building where the fire is.


>"But was their behavior anti-competitive?"

YES! They shared strategy to set prices, thats anti-competitive!

It IS an interesting subject that companies can just pay attention to competitors' prices, etc., collect intelligence, and whether thats the same as secret collusion. The answer is no, its not the same, not even close. Frankly, to premise that it is kind of dissolves your credibility as an economist. The basis of competition is to keep an eye on competitors to see what they're up to, what they're charging, what they're marketing strategy is, who they're targeting, what specials and promotions they're running. Secret collusion ends that competition.


Southwest took a risk in promoting its fare increases. Their competitors should have used the opportunity to hammer Southwest on price. Instead, because airfare tickets are unnaturally low, their competitors used the information to raise their own prices in trying to make more money. Thats competition. It didn't have to turn out the way it did.

>"Southwest's successful maneuver to increase fares raises the question of whether BA and Korean Air did anything different from Southwest."

No it doesn't! Southwest took a risk, it worked out for them this time. BA and Korean Air removed the risk.


>"Rather than anti-competitive behavior, it could just as easily be said that price-fixing is merely a harsh euphemism for competition."

Actually, thats not very easily said. You gotta be pretty foggy in the brain to think thats correct.

>"They wouldn't need to for the certainty that their customers would relay to each the prices that both charge, and both would eventually adjust to stay competitive."

Why is that certain? It wouldn't be easy. Even if customers discussed prices among themselves, theres no guarantee they would share it with the mechanics.

Thats the point of competition. You don't necessarily know what the other is going to do, and you don't know how what they do and what you do will turn out. Collusion takes away the uncertainty.


>"There would be no secret communication needed, but if a third competitor, say a Chevron station, communicates a lower price with the aforementioned signage, the ExxonMobil and BP stations will have a decision to make."

Exactly, they see what the competition is doing and make a decision to counter it. If all 3 stations met privately to set the price, there is no decision to make, there is no competition. Thats how gas stations operate, they do publicly collude to charge the same price, not all industries work like that. I'd guess few do.


>"From wireless firms to carmakers to computer manufacturers, all manner of industries regularly announce prices to consumers, which is the same as communicating their pricing plans to competitors."

Prices have decreased on electronic products because of technology. It wasn't a pricing strategy per se by the wireless and computer firms. Electronics used to cost more because it cost more for the components.
Automobiles are not comparable to this example. The price of vehicles has not decreased at all. Price is only one factor in competition for auto sales. You bet automakers want to know price and features of all their competitors, they are competitive BECAUSE they have to try and get that information on their own versus sitting in a room and sharing it directly. Competition vs. collusion, do you get it yet?


>"Some might say that collusion in secret between an industry's biggest players would still hurt consumers despite all the evidence, but even there market history tells us otherwise."

What evidence? And who are those that might say? We should know so we know who not to trust.

Blockbuster, Hollywood, Netflix is a good example of how a new competitor can come in and knock the kings off their perches. How many other examples are there? Not many. Its an exception more than the rule. Netflix is a paradigm shifter, it changed the way we rent movies. They made Blockbuster, who owned the rental market, who overcharged their customers and used unethical practices to scam their customers, step back and re-organize how they do business. Blockbuster built a lot of ill will among consumers, they were only too happy to have an alternative like Netflix. This is one example, an example where the competitor came in and shook the foundation of an industry. This doesn't happen a lot, and its hardly realistic that Blockbuster had a lot of competition previously.


>"For regulators and government officials to try and draw a comparison between the actions of Southwest Airlines versus BA and Korean Air in regard to pricing is to make a distinction without a difference."

Regulators aren't drawing this comparison, the author is. The actions are NOT the same, even though thats the author's argument. Indeed...

>"As opposed to a method that companies use to maintain prices higher than the market will bear, price fixing is in the end a process by which businesses compete with each other."

WRONG! Doing it out in the open is better, is imperfect, and has risk. Doing it in private is not competition. Further, price fixing does not always bear a price higher than the market will bear, its also used to lower the price to drive out competition. Either way, the point is that private collusion IS NOT competition.

Good point. And, huh?
I agree with that first part. The airlines are not a truly free, open market. I would argue there is no such thing, except perhaps the black market, but I don't think thats the case because its still affected by the fact its illegal.

And thats a good thing frankly. A truly free and open market with zero regulation would be a disaster. In another dimension where all people are activist consumers and all the factors are in place to create a balance of power between consumer and business, it could work. But in this world where humans are imperfect and business is even less so (as a result of human influence), I don't think it would work. But any discussion along this line is theoretical since we don't have examples to examine. Free markets are not infallible, why would anyone believe they are? And why would someone waste their brain space thinking something that doesn't exist is infallible? That sounds like religion. Interesting.


>"Your silly, immature fears of how people just want to screw each other over, and would given the chance, show nothing except your own twisted psychology."

Huh? Not all people just want to screw each other over, some people are good people. You say I need to grow up, you sound like you're 5 years old and have never been screwed over. You incorrectly imply I think EVERYONE wants to screw me over, does that mean you think no one wants to screw you over? Neither position is correct. There are all kinds out there. And you better believe there are plenty of people out there who would readily screw you over. Are you saying we shouldn't worry about those people? Thats some serious projection, you say I'm immature and you apparently aren't aware that people exist who want to take advantage of you. Silly indeed, you silly fool.

>"Cleary, YOU would try to engage in secret price collusions, and YOU would soon be put out of business. Hyprocrite."

Whats clear about this? Please, tell me what I said that makes that clear to you. Because I don't see it. And I wouldn't engage in secret price collusions, I would try to be competitive and drive you out of business. Really, are you so naive that you think no businesses try to take advantage of you? I feel sorry for you.

Airlines need government's permission to get off the ground.
Where to start.

First the FAA, government agency, controls the airspace.

Airlines need permission to begin service within the USA and government's permission for international service.

Airports are owned by local or regional governments.

The only 'deregulation' was that airlines are not now forced to provide service to any market.

" A truly free and open market with zero regulation would be a disaster"
What makes you think a free market would not be regulated?

Free markets self regulate.

The airline market IS NOT truly competitive.
So why not collude or allow the market to be truly free?

What de-regulation?
"Despite the success of decontrol, a number of problems remain. Anyone who flies knows that a scheduled arrival time is only a tentative guess made by airlines. It is calculated that more than half the flights in the United States are late. In addition, passengers have leveled many other complaints against the airlines about a host of inefficiencies. Why do such inefficiencies remain? Some suggest that the problem is that there are fewer airlines operating now. However, that is the necessary result of a competitive process.

The real answer to why problems persist is that the industry is not entirely free. For example, airports are funded by tax dollars and operated as local government monopolies. In addition, the FAA maintains a monopoly on the air traffic control system, which continues to lag far behind the technology curve. This has resulted in gross inefficiencies in the routing of aircraft that might otherwise have been remedied. Finally, domestic deregulation never resulted in global free-market competition. As a result, the domestic market is not as competitive as it would otherwise be.

The federal law that prohibits cabotage also limits foreign investment in domestic airlines. Shareholders from other countries cannot own more than 25 percent of the voting stock of a domestic firm or more than 49 percent of the outstanding equity.2 Given the high fixed costs of entry into the industry, this rule limits competition domestically. In effect, the regulation creates a cartel. "

http://www.fee.org/publications/the-freeman/article.asp?aid=4432

There it is again- ideology trumping critical thought

>"Free markets self regulate."

Exactly my point. You see free markets as infallible. Don't worry, any problem that comes up would be fixed by the market itself. Thats a terribly easy argument to manufacture, and handy in that it can offer an answer to any form of criticism that could arise.

As I also said, thats awfully similar to religion.
Don't bother to ask questions, because all your questions have answers. WRONG. There really is no point to push further, its pointless to try and argue with a person's mythical beliefs.

BTW marjon, what do you think of the point I raised before? That for a truly free market to work, it would require informed and activist consumers to maintain the balance of power between consumers and businesses?

I think you underestimate the power of business. A free market is highly susceptible to powerful influences. That power could even come from consumers, but that is highly unlikely given the nature of humans. More likely that power is the business, it wouldn't be too difficult for a powerful business to take advantage of unorganized consumers. Thats the reason regulation is implemented, and look how much questionable or illegal activity happens even in our regulated market environment, just imagine if that control were removed and all the business has to do is trick the busy, ignorant, distracted consumers to raise profits. I think its a joke that you think free markets would self regulate. Just look at history and experience. If free markets self regulate, why do we have government regulation at all? Government regulation is a response to something.

sorry to burst your bubble, but you need history and reality on your side before you offer this bogi

>"Airlines need permission to begin service within the USA and government's permission for international service."

Yeah, can you imagine if it was just left to the airlines?? There would be planes colliding all over the place. Is that what you mean by "self regulate"? You would be right, enough people die and get injured they will stop flying, I bet that would motivate the airlines to make some changes.

>"The only 'deregulation' was that airlines are not now forced to provide service to any market."

May I suggest you read up on what "deregulation" meant to the airline industry. I did, and it was much more than no longer forcing service to any market. Actually, I'm not sure that had anything to do with it, but I didn't read too deeply. The big points were making it easier for the airlines to open new routes and deregulating what they charge for flights. Pretty significant changes. But I also agree with the general point that airlines are not a totally free market, despite the huge easing of regulation 30 years ago.

Airlines not competitive???
Please explain more how you arrive at your perspective marjon.

I think your comment here is incorrect. I think the airlines are very competitive. For example, they constantly have price wars. What would it take for the airlines to be "truly competitive", if they're not already?

Here is a follow-up, because I think I know your answer, if you follow the same train of thought you've been on: Why is it necessary for a market to be completely free for there to be competition? Is it possible for competition to occur within a framework that includes regulation?

This is funny

What de-regulation you say?

Lets start with the first line of your quote from the article at your link:

""Despite the success of decontrol,..."

Lets follow it with another quote from the same article:

"Airline deregulation was wildly successful.1 In the aftermath of decontrol, airfares dropped while the number of passengers increased."


So theres your answer to "What deregulation?". What a craw in your ideology that must be.

I notice an absence of security considerations in that article also. It appears to have been written in October 2002, which is ever more mysterious why, 1 year after 9/11, security wouldn't be foremost in a discussion of allowing foreign companies to own domestic American airlines. Remember the blowback when the people learned of foreign companies' ownership in our ports? I'd love to see the circus if we opened ownership of domestic airlines to foreign companies. For some reason I don't think a lecture on free markets and competition would go very far. But nice try anyway. Thanks for the laugh.

"require informed and activist consumers"
Shouldn't everyone be an informed consumer?

Consumer Reports tests and evaluates products all the time.

Is it not YOUR money? Don't you want to spend it wisely?

Free markets are self regulating as we speak.

Give me any example of a FREE market that is not NOW self regulating.

Business power
The only power business has is to provide a quality product or service AND/OR bribe politicians to stack the deck in their favor.

The last part is NOT an example of a free market.

Free market air traffic control
Canada is proposing privatizing ATC.

Airlines want to install GPS systems so they can navigate without ATC. If a GPS and computerized navigation system were installed in the USA, private air cars would be possible.

Why would any airline NOT want to have traffic control of some sort? They don't WANT to hit each other which is why in spite of all the gadgets and gizmos, pilots are constantly looking out for other aircraft.

Yes, there it is again,
and, once again, it is you doing the idealogical non-thinking, marjon doing the critical thinking, and you doing your typical projection-game. I'm amazed at how you don't comprehend your own actions.

hmm, so causing accidents and killing customers is good for business?
> Yeah, can you imagine if it was just left to the airlines?? There would be planes colliding all over the place. Is that what you mean by "self regulate"? You would be right, enough people die and get injured they will stop flying, I bet that would motivate the airlines to make some changes.

Interesting idea there. Killing your customers as a way to retain their business.
Might work if you're selling caskets, church services, and shovels, but not in the airline business.

Your attitude shows your ideology plainly, in that you're seemingly convinced that companies and people have no idea what's good for them and only the Government knows.

> May I suggest you read up on what "deregulation" meant to the airline industry. I did, and it was much more than no longer forcing service to any market.

Indeed. But it didn't remove the restrictions on airlines wanting to start servicing a route.
Instead of being limited by available slots they're limited by bureaucracy and bribery.
If you pay enough to some local or national politicians suddenly restrictions are lifted and slots appear where it was previously claimed there was no room for expansion.

Similarly governments use the same tactics to force consessions on companies.
France for example threatened to block applications of several national airlines for landing at French airports unless those airlines bought Airbus aircraft for example, and in other cases rewarded airlines buying Airbus aircraft with slots.
I'm sure in the US at a local level similar things happen.

hardly
- if an airline threatens to go down they're bailed out by the government
- pricewars exist mainly on paper. They're hollow instruments to draw attention to yourself, the actual price people pay for their tickets remains the same. The only thing that changes is that some of the basic fare price is offloaded onto new or increased "surcharges" and "taxes" (which aren't taxes at all). A few years ago on a $200 ticket you'd have $20 surcharges. Now that same ticket costs $100 with $150 surcharges. The pricefixing BA and KAL were convicted of is nothing new. All airlines do it all the time, they're in general just smart enough not to get caught at it (and I can't escape the feeling that KAL and BA were selected to take the fall to protect the interests of the industry as a whole).
- With airlines ever more part of global organisations like Skyteam and Star Alliance which ARE allowed to do pricefixing as they're single legal entities, competition is less than it has been in decades.

If thats all you're going to do I won't waste my time with you
I asked you several questions, presented my point of view on a subject and asked for your rebuttal and/or pov. You respond with this?

Well, stay in the shallow end if you must. I'll be in the deep end if you're ever ready for a conversation.

Are you kidding?
What a naive view!

>"The only power business has is to provide a quality product or service AND/OR bribe politicians to stack the deck in their favor."

A business has money, which translates to power. All it takes is will and a business can use that power for whatever means any other individual or group can use power to accomplish, good or bad.

Why am I the one educating you on this? How do you have such a naive view for an apparently astute libertarian??

Actually, the last part, bribing politicians, IS indeed part of a free market. Politicians would still have an indirect influence in a truly free market. There is no reason to think corruption would not still occur in a free market environment. If you have reasons to think it, please share.

Give me an example of unregulated business taking advantage.
You make claims that business must be regulated for protection of consumers.

Give me any example of a business, operating in a free market, that requires government action to protect consumers.

Foreign companies own all sorts of businesses in the USA. So what?
Last time I looked, most airlines sell stock. That stock can be purchased by anyone, even non-US citizens.

So I don't get your point about foreign ownership.

How much cargo entering the USA now passes through a port operated by Dubai or Singapore?

I supported the Dubai Ports deal. Recall the fuss made when a Japanese company purchased Pebble Beach golf course? They later sold it at a loss, but what were they going to do with it? Move it to Japan?

The real circus of foreign ownership would be from other countries. THEY don't want open skies or foreign ownership of THEIR airlines.

How does any business FORCE you to buy their product in a free market?

In a free market politicians don't NEED to be bribed.
With a truly limited government, bribing a politician is a waste of money becasue he has NO power to help an individual enterprise. He would only have the power to affect ALL enterprises equally.

Yes, thanks for illustrating TGO
Its easy to opine and not offer a pov of your own. I'm the only one thinking AND the only one offering points of view.

"typical projection-game", that one always gets me. Right-wingers are so funny in their use of that cliche. Its become a cliche you use it so much. You just don't get it. Frankly, thats fine with me, its your ticket to irrelevancy, good riddance I say. Bush's lessons have you guys so screwed up in the head. Look at the reaction to Mit Romney's latest ad talking about how Republican's need to change, etc. Some Republicans get it and agree, most crunch their eyebrows and gape their mouth like they're having a short-circuit. But we're perfect, we have principles, why would we change? So funny, so clueless.

come on now, gotta try a little harder to make the connection

>"Interesting idea there. Killing your customers as a way to retain their business."

No, thats not the idea at all. The idea is that killing customers would drive away business, losing business is the only thing that would get the airlines to make changes for the benefit of customers.


>"Your attitude shows your ideology plainly, in that you're seemingly convinced that companies and people have no idea what's good for them and only the Government knows."

NO!! Thats totally bogus, I totally disagree, the government does not know better! Maybe you think this because of your misunderstanding my comments, but seriously, what did I say that gives you this impression? I adamantly disagree, so if I expressed otherwise I want to know so I can identify and avoid.


>"Indeed. But it didn't remove the restrictions on airlines wanting to start servicing a route.
Instead of being limited by available slots they're limited by bureaucracy and bribery.
If you pay enough to some local or national politicians suddenly restrictions are lifted and slots appear where it was previously claimed there was no room for expansion."

I don't disagree with your comments on this point. It very well may still be bureaucracy and bribery that gets open slots where they were previously denied. I'm just not knowledgable enough to offer educated opinion on these details.

At the same time, easing this burden was one of the main functions of deregulation in the 70's. There were cases where CAB would take years, like 6-8 years, to examine and approve an application for a new route. This process was greatly improved through deregulation. It may still require further improvement, but don't dismiss the fact that deregulation improved the process.

I do disagree with you if you're arguing that all restrictions for starting a new route should be removed. I believe there have to be ground rules, there have to be some limits. The limits should come from the availability of slots, not bureaucracy and bribery, agreed on that.

The question is pointless, again
Your question is so general and presents such a high standard its not applicable to what we're discussing. No one claims a business forces anyone to buy their product in a free market. Its completely off the subject.

This is what I'm talking about marjon. Your only point with a silly question like this is to score points and make yourself look better. Stop wasting our time. There are no points to score. If all you care about is how you look, well, that makes me correct in my pov. Its sad what ideology does to people. Intellectually lazy.

I agree with you. So what?
Why are you so eager to disagree with me? I was bashing the article to your link, not foreign ownership of domestic airlines. I agree with you, open it all up. The circus comes in when we would actually try to do it. Can you imagine an American domestic airline owned by Saudi Arabia? People would spontaneously combust. Thats the circus to enjoy witness to.

You do not seem to be afflicted by The Fear of terrorists like so many other of our citizens are. Good for you, nice work. Dubai Ports deal and foreign ownership of domestic airlines are the same issue in terms of security. Raising the point of free markets and competition wouldn't get us far in light of The Fear and security considerations.

>"Last time I looked, most airlines sell stock. That stock can be purchased by anyone, even non-US citizens."

Foreigners are allowed a maximum of 25% ownership in American domestic airlines. And airlines based outside America are not allowed to offer domestic flights. A big example was Richard Branson, wanted to open Virgin Airways out of New York and compete with Southwest as a low-cost domestic carrier. He was denied because he is not an American citizen.


>"The real circus of foreign ownership would be from other countries. THEY don't want open skies or foreign ownership of THEIR airlines."

Really? Care to elaborate? Of course you don't. I think you had no idea what you were talking about when you typed that. Course, you don't need to when all questions are anwered by an ideology. "Free Markets!" is the answer to everything. Yeah right.

No Subject

>"pricewars exist mainly on paper."

Are you serious? Have you flown more than one time? The more I think about this, the more ridiculous it seems.

As I've flown maybe 6 times in the last 6 years, I've witnessed ticket prices at varying levels. My sister has flown twice that many times and her feedback about it expresses a lot of variability in ticket prices. They go up and down to different destinations all the time, there is no consistency in the trending of airline ticket prices.

But we have to qualify that. The pricing system of airline tickets is so complex I'm not sure this point matters. WHEN you buy the ticket is a huge factor. Buying it 6 months out vs. 1 month out vs. 2 weeks out vs. 1 day out, makes a huge difference in the price you pay. I find it stunning that on the same flight you likely find people who paid $400 for their ticket and others who paid $100. Hey, is that the free market at work?


>"A few years ago on a $200 ticket you'd have $20 surcharges. Now that same ticket costs $100 with $150 surcharges."

Please admit thats an exaggeration. I'd put $100 on the fact being that no airline ticket costs $100 and has $150 of surcharges. Consumers would be furious to learn their ticket promoted at $100 has a 150% surcharge. It would fail very quickly and cause untold damage to the reputation of the carrier.

The latest bait, as far as I can tell, is to promote $100 for a one way ticket, so the roundtrip is still $200. But you know that right in the ad, its not added later without your prior knowledge. But thats still cheaper than $300-$400 like it used to be for the same roundtrip. And its just one specific promotion among many.


>"The pricefixing BA and KAL were convicted of is nothing new. All airlines do it all the time, they're in general just smart enough not to get caught at it (and I can't escape the feeling that KAL and BA were selected to take the fall to protect the interests of the industry as a whole)."

Maybe so. Does it bother you that it happens all the time? And if it does happen all the time, WHY do the airlines need to be bailed out? They pricefix! Are they not smart enough to pricefix themselves higher prices so they can be profitable? If they do do it all the time, our government is negligent for not enforcing the law and the airlines deserve no bail outs. That, or they don't do it all the time, they really are competitive. I don't know which is the case, but I surely don't trust airlines or government.

>"With airlines ever more part of global organisations like Skyteam and Star Alliance which ARE allowed to do pricefixing as they're single legal entities, competition is less than it has been in decades."

Aren't Skyteam and Star Alliance a result of a free market? What a novel idea. I'd never heard of either of those before this. I think its a stretch to call what they do pricefixing, but I would love to see a thorough debate before making a conclusion. Its an interesting philosophical question. You gotta draw the line somewhere.

Skyteam and Star Alliance fill a niche market need. Their customers are very frequent travelers.

I had a curious thought, you say competition is less than it has been in decades. Deregs were passed in 1978, there was a flurry of competition following that, then things kind of settled, then, as is natural to a free market situation, consolidation set in. So now there are far fewer carriers, and as you say, pricefixing happens all the time... perhaps you're right, perhaps competition is less than it has been in decades. Perhaps that is free market forces at work. I'm just following the logic.

But I get your point too. You think the deregulation wasn't deregulating enough, thats the reason its less competitive. I just disagree. Things are not perfect as they are, but I think some regulation is good and necesary, it needs to be fixed.

Still no answer to my challege.
Prove free markets are 'bad'.

Free market example: video games
There are 3 major game box makers, Microsoft, Sony and Nintendo.

Nintedo is doing really well with its Wii.

Halo III just launched with Microsoft's X-box 360.

Sony, who built the Playstation, is not doing well with its PS3 in spite of the hype.

Those who create the games must work within certain standards defined by the hardware platform. Just as the hardware must conform to standards to function. These are mutually agreed to standards, not regulations.

If all industries would follow the example of computers and video games... all would be rich.

thats not a challenge
Why would I try to prove free markets are bad? I don't think they are. I think free markets are good.

That doesn't mean they're infallible. Doesn't mean that zero regulation is required. I suspect thats where the difference in our views lies. I'm trying to understand your view but you offer little to nothing of substance to the discussion.

I struggle to even comprehend how someone falls to a view like you have. Its ideological no question. Worse, you offer these ambiguous questions that are totally pointless. Well, as I already said once, your point is to use shallow banter, to avoid substantive discussion. Its really too bad, I think your view is interesting, I'd enjoy to read what backs it up. All I can assume is, nothing backs it up, you're just shallow in general. Thats fine, be who you want to be. At least it turned my gears for a little while, I read and learned some new things from other sources.

"I struggle to even comprehend "
I believe that.

You claimed airlines were deregulated. They are not.

You claimed airlines NEED government regulation to operate. I disagree as did a few others.

You have yet to prove your claims that government regulation is required or free markets will do bad things.

I submit free markets are self regulating by their very nature. What is required are savvy consumers. Fools and their money are easily parted. The way to reduce the number of fools is not to protect them, but to train them NOT to be fools.

at least I can admit it

>"You claimed airlines were deregulated. They are not."

So what happened in the 1978 Airline Deregulation Act, if it wasn't deregulation? They are less regulated than they were before 1978. Pretty simple. Airlines are not regulation-free. You think they should be, I think there have to be boundaries for them operate within. Boundaries that address the needs of everyone who participates in the system. Without boundaries it turns into a dogfight and the boundaries that eventually develop are set by the winner of the dogfight. The winner gets the spoils, thats how a free market operates. Everyone else gets screwed. You think the winner is always going to be the consumer, I disagree. It would be nice, its ideal, but not realisitic.


>"You have yet to prove your claims that government regulation is required or free markets will do bad things."

You might recall, way back before you took us on all these sidetracks, I said this is a theoretical discussion anyway, because truly free markets do not exist, so we have no real cases of a truly free market to be able to examine and judge. You didn't object, so I assume you agree.

Bad things happen within regulated markets now, there is no reason to think taking away the rules would lessen bad things happening. To the contrary, it would be easier to do bad things, so I would expect bad things to increase.


>"I submit free markets are self regulating by their very nature. What is required are savvy consumers. Fools and their money are easily parted. The way to reduce the number of fools is not to protect them, but to train them NOT to be fools."

Nice. I agree. I believe I also made that point earlier, instead of "savvy" I used the words knowledgable and activist. Savvy is a good word.

But to train them not to be fools... Thats a very difficult endeavor indeed. Probably impossible unless you could transform many other facets of our culture at the same time. For example, I think one factor that leads to people being fools is rampant consumerism and advertising. Those things would not go away if we transformed a market to truly free.

I'm trying to visualize and work out that you're correct, I just can't get there. I'd have to ignore reality, ignore our history of experience, of companies taking advantage of the system and people to increase profits. It happens already within our limited free market system, I think it would be no different, worse if anything, within a totally free market system.

Pollution is a good example, it has an effect on society that is not immediate, in a free market they could pollute all they want and face no repercussion short term. The risk to the polluter is small, the long term damage to society is great. The only remedy, as we both agree, is for consumers to find out, then organize in a way that leverages against the company to make them change. How realistic is that? First, the green light to pollute would be on, the number of companies to regulate is vast. Second, consumers would have to even learn of the discretion, which obviously would be hidden and efforts made to keep it hidden. Finally, consumers would have to be motivated and disciplined to take action and stick with it. And what of right-wingers, who don't care about pollution and would thus become the "scabs", subverting the efforts of savvy consumers to regulate the bad behavior of those businesses.

I don't know, if reality is the circle, I think you're working with a square peg. It just doesn't fit. Its not logical. I welcome you to explain the logic. I recognize just because I can't piece it together doesn't mean it isn't true.

You're welcome for the gifts too. There are lots of little quotes you can pull from this where I express I'm not perfect, you can put it in the little subject line there to fill your shallow pool.

"Everyone else gets screwed. "
Prove it.

The most government regulated market is the computer/internet/video game industries.

I don't see too many consumers getting screwed. I see all sorts of competition and customers getting a wide variety of products and services.

I see a heavily government regulated airline industry with thousands of dissatisfied customer every day.

Who is getting screwed?

" in a free market they could pollute all they want and face no repercussion short term."
With a government that protects private property rights, any polluter would be subjected to law suits from the polluted.

That is if the government wasn't being bribed by the polluters.

"Its not logical."
What't not logical?

Free markets?

pie in the sky
Nice analogy, I think you're right on that it would be great if all industries could copy the video game industry as you describe it. Mutually agreed standards, what a great ideal. That would be awesome.

Unfortunately, this sticky thing called reality gets in the way.

And your description is inaccurate too.

The only standards that the hardware makers conform to is technology. They are limited by how far they can take the technology for the size, speed and power of their hardware.

The standards game makers conform to are derived by the language and power of the game system. The game makers learn the platform and specs of the game system and then design the game to work on that platform.

What "mutually agreed to standards" exist in that relationaship? These are technical standards, set by technology...

It seems more similar to almost every manufacturer that exists. I build cars, I need suppliers to get the parts to build my cars. I give the specs of the parts I need and suppliers fill my orders. I have the leverage in the relationship, if a supplier doesn't meet my standards I go to another supplier. Therefore we do mutually agree to the standard of quality I set for the parts I buy. I may even require a further degree of social responsbility from the suppliers I work with. Again, for a supplier to get my business it will mutually agree to the standard I set.

Is that what you mean by "mutually agreed to standards"?

It would be nice if everyone played nice and negotiated in good faith. Sadly reality is different.

is that a typo, or accurate...?
Because I agree if its accurate.

Consumers do benefit quite a bit from the nature of the electronics market. Technology has a lot to do with that though. Its a unique type of market, an exception more than the rule. You say its "the most government regulated market", if thats not a typo, and if its true, what a remarkable example of how government regulation can be helpful to the competitiveness of a market.

The airline industry. Its another unique market with a complex web of government vs. privately owned entities working together. That will never change because it also has significant security implications. Its even a hybrid responsibility for the thousands of dissatisfied customers: private airlines have added too many new routes for the air control system to handle, at the same time the government-run air control system is antiquated and inefficient. What a great example of how government control can be a disaster. And how private entities can be short-sighted and overbearing.

The first example I don't think anyone is getting screwed.

The second example its the customers getting screwed.

free markets are not infallible
I've heard this argument before. I think its reasonable to consider it, it should be debated and discussed. I see problems though:

What if the polluter pollutes on his own land. In essence he buys a piece of land for the purpose of dumping waste on it. That waste can affect more than just the piece of grass its dumped on.

>"With a government that protects private property rights, any polluter would be subjected to law suits from the polluted."

Thats assuming the polluted knows they've been polluted, and has the wherewithall to file a lawsuit. If its a company unethical enough to dump waste on someone else's land, they're likely unethical enough to threaten and intimidate the land owner from filing a lawsuit. Its not reasonable to expect a citizen to have to fight a corporation with deep pockets when the corporation was the one who wronged the citizen. Not to mention, that waste can affect more than just the piece of grass its dumped on.

Its not logical you can train fools to not be fools
Free markets are quite logical. Just not infallible, as such, some form of regulation, or ground rules, are most times necessary. And to varying degrees depending on the circumstances of the industry.

Trust without regulation
" Trust Without Regulation
So, should you trust Mr. Dealer? To help you decide, you can get to know him, look into his credentials and seals of approval, try out his service on a trial basis, ask for a warranty, ask a neighbor about him, get a second opinion, consult an information bureau or a rating organization, find out what his competitors are saying about him, or have someone that you trust arrange your dealings with him.

If, after all, you cannot come to trust Mr. Dealer, then don't! Look for someone else who gives better grounds for trust.

A failure to foster trust opens opportunities for individuals and firms to profit by providing what is lacking. In the realm of voluntary affairs, bad outcomes breed their own remedies.

The only rascal in the laissez-faire story is the untrustworthy promisor. A vote for coercive government measures to control him must rest on the belief that this rascal cannot be adequately foiled by voluntary institutions.

But the open-ended, voluntary processes generated by resourceful middlemen, qualified knowers, trustworthy promisors, and wary consumers have been every bit as successful as government restrictions in providing quality and safety assurance. "

http://www.scu.edu/ethics/publications/iie/v8n3/freemarkets.html

Free markets are self correcting as long as a government doesn't protect those that abuse your trust.

Ever hear of Erin Brockovitch?
Note that the government did little to protect the residents.

Once a lawsuit like that has even been initiated, anyone in that industry takes steps to avoid such litigation.

Again, as long as the government doesn't sanction or protect the polluters, the free market and litigation will eliminate the need for regulations.

BTW, once any court action is initiated, ALL settlements, in and out of court must be public record.

Yes, and look how long and difficult and painful it was to get "justice"
Is that the best answer? People must get sick and die and suffer hardship, and then, miraculously and only because of tedious leg work and lucky breaks, the lawyers were able to pin the company and get restitution.

>"Note that the government did little to protect the residents."

Exactly right. The government should have been sued as well, in my opinion. And I tell you what, if the case was in court during the last 7 years, our government would've worked on the side of the business. Thats one wonderful aspect of the Bush Administration. But thats another subject.

The government was feckless in the Erin Brottovich story. So the mechanisms of free market did eventually provide restitution, but at what cost? And is that cost worth it? I say NO. The damage was already done. Thats one case we generally view as a good example that litigation can hold a company responsible, but how many others have gotten away with it because it couldn't be proven? Because they were successful intimidating, settling early or hiding the evidence?

I don't think free market principles can improve upon the system in its current state. Its already a free market to an extent, removing all regulation would not improve the situation.


>"BTW, once any court action is initiated, ALL settlements, in and out of court must be public record."

You might want to check on that, I don't think thats the case. Settlements are frequently kept secret in real cases happening all the time.

I like those comments, but its IDEAL, NOT REAL
That is my point in this whole discussion. If all other factors fall into line, truly free markets are a wonderful thing. But we're talking about humans, flaws are all over the place, hence are also all over the place in free markets.

>"A failure to foster trust opens opportunities for individuals and firms to profit by providing what is lacking. In the realm of voluntary affairs, bad outcomes breed their own remedies."

Indeed. But trust takes time to develop, people don't spend that kind of time building trust with retailers. Thats assuming you can find one to trust.

Yes, opens opportunities for others to provide what is lacking. Also opens more opportunities for deception and corruption. I like this point, the concept that if 10 other people get screwed by a business, hopefully I can learn about their experience before I have to experience it myself. The internet makes that kind of communication possible. Its a fantastic concept, its ideal. But its still subject to corruption. The hucksters and scam artists would flourish in truly free markets, as much or more than they do now.

Free markets are not good as an ideology, they are not infallible and should not be applied uniformly across all industries and under all circumstances.

I thought of something last too. Your analogy with the way video game markets work. The airline industry does work the same way. The airlines do the planes and the flights and cover that part of it. The airports and air traffic control do that part of it. The fact that government owns the airports and air traffic is about the only form of regulation the airlines deal with. Which is not really regulation at all. As per your comments, its the mutually agreed to standards. Maybe the airports should be transferred to private control, not to the airlines, but to another private entity dedicated to running airports and air traffic control. That would make it practically identically similar to the video game situation. I would support that.

"the mechanisms of free market did eventually provide restitution"
Did the government fix it or did the market?

When companies get sued and lose, they begin to regulate themselves.

In most cases, the market is leading the way with regulations trailing along, and usually making things worse.

Had Firestone and Ford not been able to settle out of court, their tire inflation issue would have been identified much sooner.

One person gets sick eating a contaminated food product and the entire lot is immediatly recalled BY THE COMPANY.

Those that don't pay attention or try to hide defects will soon be put out of business by the market.

"Free markets are not good as an ideology, they are not infallible and should not be"
And government regulations are less fallible?

Typo: Computers LEAST regulated
How can you say the computer/internet industry is the most regulated?

You agree airlines are heavily regulated AND customers are getting screwed. Could there be a connection?

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