Reading the
District Court decision approving the merger of TMobile and Sprint (see https://cdn.vox-cdn.com/uploads/chorus_asset/file/19712093/show_temp__6_.pdf), I am reminded of how much antitrust law relies on
informed predictions of future market performance. Judge Victor Marrero concluded that the
plaintiff state Attorneys General failed to meet their burden of proving that
the merger would materially harm consumers and competition. In effect, the Judge bought the assertion
that New TMobile will more aggressively compete and innovate than what the two
stand-alone companies could muster, i.e., that the whole would be greater than
the sum of the parts.
This comes
across as a leap of faith, substantially challenged by a hindsight review of
market consolidation in other markets.
Let’s look at commercial aviation in the United States, with attention
to how Southwest refined its business plan and strategy after several mergers
involving both the company and other airlines.
Put more simply, is Southwest still the maverick in the same vein as
TMobile?
The answer
to this question addresses how bulked-up companies, like Southwest and New
TMobile, respond to a concentrated market.
Will they continue seeking to chisel additional market share from legacy
carriers, possibly at the expense of profit margin, share price, average revenue
per user and year-end bonuses, or will they “take the foot off the peddle”?
In Southwest’s
case, tweaks to their business plan show a reduced value proposition for
consumers--what economists call consumer welfare. Part of the reduction, results from a
maturing company, but arguably a larger part results from adjustments that
enhance the company’s bottom line with “nickle and dime fees.” While Southwest has opted to continue offering
checked baggage at no additional cost, the company has joined with other
airlines in charging new fees that can significantly increase consumer’s total
out of pocket costs. Southwest did not initiate these “enhancements,” but a
concentrated market, where all other carriers charge these fees, makes it easy
for the former maverick to join the group. See, e.g., https://www.forbes.com/sites/danielreed/2019/02/21/all-grown-up-as-it-approaches-50-southwest-is-dealing-with-mature-airlines-kinds-of-problems/#7031f97f7a7e;
https://www.mcall.com/news/nation-world/mc-southwest-airlines-no-longer-cheapest-0505-20150505-story.html;
https://www.fool.com/investing/2018/12/01/cost-creep-at-southwest-airlines-will-help-its-riv.aspx.
I do not
share Judge Marrero’s breathless optimism that the TMobile-Sprint merger
benefits competition and consumers. Can anyone
come up with examples where industry consolidation has enhanced the value
proposition for consumers? Channeling
Sarah Palin, how’s that concentrated airline industry working out for you?
