US Airways/American Merger: Government Has To Help Save Capitalism From Itself
The news that the Department of Justice is opposing the US Airways – American merger is good news, not just because you should never fly US Airways since they love to lose your luggage (happened to me TWICE) but because this type of behavior should never just get a rubber stamp of approval.
Even if the merger does eventually get through (that seems to be the consensus from People Who Know Things), the consumer’s interests are often never given a second thought in these combinations of big business.
I’m currently reading an excellent biography of John D. Rockefeller, arguably the greatest capitalist that ever lived, and it’s stunning how much he hated the free market. Our friends on the right always hold up business and the free market as their twin pillars of America, but its worth remembering that the idealistic version of the free market often doesn’t happen in reality. The textbook world where companies equally compete against each other in a war to appeal to consumers is often the stuff of myth at the mega company level of business.
In reality, as Rockefeller did, companies often move towards collusion, cooperation and combination. They work in cartels to raise/lower prices depending on their needs – not the actual market demand. Or they just eliminate pesky competition by absorbing each other.
Rockefeller hated the gyrations in price and profit that an actual free market generated. He preferred control and settled markets and worked to eliminate competition either by buying them out or driving them out of business by manipulating prices with his market power.
When this happens, in the case of trusts, etc. it is the consumer who suffers. Here’s the DOJ on the proposed merger:
If this merger were to go forward, consumers will lose the benefit of head-to-head competition between US Airways and American on thousands of airline routes across the country – in cities big and small. They will pay more for less service because the remaining three legacy carriers – United, Delta and the new American – will have very little incentive to compete on price. Indeed, as our complaint shows, the management of US Airways, which will run the new airline, sees consolidation as a vehicle to reduce competition between the airlines and raise fees and fares.
The role of the government is to police these abuses and planned abuses of the consumer by business. It is to referee the market from its inclination to fatten its pockets and squeeze choice from the market, giving the consumer the shaft.
We must always be vigilant of capitalism’s inclination for this sort of business, and while we encourage capitalism, be aware of its potentially abusive power.
March 31st, 2015
March 31st, 2015