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Saving Consumers from Lower Prices

August 20, 2013 in Economics

By Richard W. Rahn

Richard W. Rahn

Why does the Obama administration claim it wants you to pay less for your airline ticket, but more for the shrimp you buy? One reason the economy keeps stumbling along is that businessmen, consumers and taxpayers are having a hard time planning because of endlessly inconsistent and often lawless policy directives from the Obama White House. On the same day last week, the administration announced that it was seeking to block the proposed American Airlines-US Airways merger, allegedly to protect consumers against higher prices — and that it might impose higher duties (taxes) on shrimp from foreign competitors to protect U.S. shrimpers, meaning that all who eat shrimp will have to pay more.

The Justice Department, under the leadership of ethically and intellectually challenged Eric H. Holder Jr., came up with a study that concluded that airline ticket prices would be higher and service worse if American Airlines and US Airways merged. The conclusion was immediately challenged by affected parties (the companies and the unions) and many transportation economists. I do not know, as a frequent flier, whether I will be better off or worse off with the proposed merger. I do know, however, that the folks at the Justice Department also do not know, but trying to block the merger massages their egos and their lust for power.

For the Justice Department to know that the merger will cause higher prices, it would have to know what the affected airlines will do if they do not merge, how competitors will respond, and how many new entrants will or will not come into the market. In fact, Justice knows none of this. American Airlines is now in bankruptcy. If it is not allowed to merge, it could go out of business, meaning less, not more, competition. The airline industry is one of the most competitive, and the costs of entry are modest (you have to raise enough money to buy or lease at least one plane). Over the past 30 years, dozens of airlines have come and gone. Personally, I prefer to fly on airlines that are profitable because they have more money to spend on service, newer planes and safety. The fact that the Justice Department chooses to waste money on this totally unjustified antitrust action merely shows it still has far too large a budget, despite sequestration. Hint to members of Congress who are looking for places to …read more

Source: OP-EDS

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