Airline Tariff Publishing Investigation

1. Airline Tariff Publishing Investigation DOJ Investigation Began in 1991 Settled by Consent Decree in 1994 Never Went to Trial

2. Airline Tariff Publishing Company (ATPCO) • Central clearinghouse for dissemination of fare change information • Airlines send information to ATPCO daily • New fares added • Old fares removed • Existing fares changed • ATPCO sends compilation to • Computer reservation systems (CRS) • Available to travel agents and consumers • All major airlines

3. Information Transmitted by ATPCO • Fare basis code or “name” of fare • Origin and destination airports • Price • First and last ticket dates • First and last travel dates • Restrictions • Advance purchase • Minimum stay • Blackout dates • Specific routing or set of flights

4. Focus of Investigation • By setting a future first ticket date, an airline could announce a fare increase, but delay its implementation. • “Pre-announcement” of price changes • Ticket and travel dates as well as restrictions were submitted as footnotes to the fare. • “Footnote designators” are names for footnotes submitted by airlines • Fare basis codes and footnote designators could be used as a means of communication

5. DOJ’s Case: December 21, 1992 • Filed charges against ATPCO and 8 airlines • Airlines used ATPCO to collude to raise prices and restrict competition • Data from ATPCO records and airlines’ internal documents • One carrier announces fare increase on future date • Other carriers announce increases on same route, often at a different fares • Iterated back and forth until all charge same fare on same date • When “agreement” was not reached, fare increase did not go into effect

6. Multimarket Coordination • Suppose Middle Tennessee Airlines has a hub at Nashville and offers non-stop flight to New Orleans and Chicago • Mid-South Airlines has a hub at Atlanta offering non-stop flights to New Orleans and Chicago • Both also operate flights on the Atlanta-Nashville route • Each offers one-stop service in competition with the other’s non-stop flights

7. Multimarket Coordination • Suppose MTA is unhappy with MSA’s Atlanta to Chicago fare • MTA cuts its Nashville to New Orleans fare with a short last ticket date below that offered by MSA using a basis code similar to MSA’s for Atlanta-Chicago • MTA then matches MSA’s Nashville-New Orleans fare with a first ticket date the same as the previous last ticket date • If MSA gets the message, • it ends its cheap Atlanta-Chicago fare and matches MTA’s fare on that route • with a first ticket date that is the same as MTA’s last ticket date on the cheap Nashville-New Orleans fare • Result: each carriers’ one-stop fare matches the other’s non-stop fare

8. Airlines’ Defense • Not a per se violation of Sherman Act • Consumers benefit from fare info • Evidence: Bookings surge near end of sale, fall shortly after fare increases • Court should use a rule of reason standard • All firms respond to actions of competitors • DOJ allegations indistinguishable from competition • Pre-announcement also occurred on monopoly routes where collusion is irrelevant • No pre-announcement of price decreases • Decreases are more destabilizing to cartel behavior • Basis codes and designators not used to signal connections between fares • Unknown number of seats available for any fare • Low profits, frequency of exit implies any price-fixing is not effective at raising profits

9. DOJ Response • Consumer benefits small in comparison to opportunity to coordinate prices • Surges occurred only on a few well-publicized occasions, not those with multiple end-date changes • Pre-announcement on monopoly routes shows some value to consumers • Pre-announcement of fare decreases were avoided because of likely antitrust problems • Remaining seat availability for a fare is known, even if total number of seats is not • Profits not relevant, collusion may raise profits (reduce losses) even when firms still lose money

10. Remedy • When DOJ filed its case, it also filed a settlement with two airlines • United and USAir • Agreed to stop pre-announcement of fares • Tunney Act: Court must review government antitrust settlements • Other airlines opposed • DOJ said harm to conspiracy only reason to oppose • Court accepted settlement • March 17, 1994 final settlement • No restrictions on fares, but no pre-announcement • No linking with codes or designators • Expires in 10 years (2004)

11. Subsequent Fare Setting Practices • Airlines announce fare increases on Friday afternoon effective Saturday • Traffic is low on weekends; few tickets sold • If competitors do not match by Sunday afternoon, • Increase is withdrawn Sunday night • Old fare in effect Monday morning • If competitors match the increase, the higher fare remains in effect

12. Importance • Did not go to trial • no court decision or order • no antitrust precedent was created • Signaled the DOJ’s willingness to pursue coordinated prices made possible by rapid communication • In Economic terms, the airlines’ use of ATPCO was a facilitating practice • Still not clear if this was evidence of conspiracy (per se violation) or an illegal practice under rule of reason