|Subject||Joint profit maximization, bilateral monopoly|
|Key Words||Commission, price, cost, consumer, collusion, antitrust, collective bargaining|
Most major airlines have reduced the maximum commission they will pay travel agents to sell air tickets. They will pay 5 percent of the price, subject to a maximum of $20, down from $50. This is the fifth cut in commission in the last six years. In 1995, travel agents earned $3.7 billion in commissions, while selling $56.3 billion in tickets. In 2000, commissions fell to only $2.1 billion, although ticket sales rose to $76.6 billion. The recent change has been prompted by reduced business travel and the largest losses in a decade.
Travel agents are angry. They expect to lose another $500 million unless they can pass the cost on to the consumer. They feel the airlines are trying to put them out of business. As a result, the American Society of Travel Agents asked its members to close for two hours one day in protest. Some agents picketed airports. The airlines deny any wrongdoing. They say that the lower commissions were determined separately by each airline, not jointly, which would constitute illegal collusion.
Although travel agents sell 80 percent of airline tickets, they have
no say in what commission they receive. Therefore, they would like to
be exempted from antitrust prosecution so that they can engage in collective
bargaining with the airlines over commissions.
(Updated October 1, 2001)
|Source||Marilyn Adams, "Travel agents demonstrate against airlines' fee cuts," USA Today, August 31, 2001.|
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