Domination of Dallas
Subject Predatory pricing
Topic Market Failure, Regulation, and Public Choice
Key Words Predatory conduct, monopolistic, fares, losses, competition, anti-competitive
News Story

In April 2001, a federal judge threw out a Justice Department lawsuit against American Airlines that had alleged that American had used "predatory and monopolistic" conduct against Vanguard Airlines, SunJet International, and Western Pacific, forcing them out of Dallas/Fort Worth, American's biggest hub. The Justice Department charged that American had slashed fares and incurred losses to thwart competition, and then had raised fares again after forcing some of its competitors out. Only Western Pacific is now flying.

The government was concerned because it saw competition in the airline industry as being dependent on small start-ups and not on the actions of the major airlines.

American had claimed that it had engaged in vigorous but traditional competition, but had not broken the law. The district judge agreed, stating, "American may be a difficult, vigorous, even brutal competitor. But here it engaged only in bare-, but not brass-, knuckle competition".

Now the government has decided to appeal the case. If granted, the appeal would help define what is illegal, anti-competitive, conduct. American is confident that the appeals court will concur with the lower court.

(Updated August 1, 2001)

1. a) What constitutes predatory pricing?
b) What does the law say about it?
c) Why isn't American Airlines' size proof enough of anti-competitive behavior?
2. a) Can predatory pricing be good for the economy in general, and for consumers in particular? Why?
b) Can it be bad? Explain using a diagram of the Dallas/Fort Worth airline hub dominated by American Airlines.
3. Why is competition more likely to emanate from start-ups than existing major airlines?
Source Marilyn Adams, "Airline antitrust case resurfaces," USA Today, June 27, 2001.

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