U.S. v. American Airlines case brief

U.S. v. American Airlines case brief summary

FACTS

American Airlines and Braniff Airlines were competing for passengers flying through Dallas-Fort Worth (as its two major hubs) and the CEO of AA requested that the CEO of Braniff raise fares by twenty percent. Braniff declined and presented the DOJ with a tape recording of the conversation.

DISCUSSION
The Court considered that the high market share and high barriers to entry alleged a situation where Crandall (AA CEO) made a proposal that had a dangerous probability of success and it was the act most proximate to the commission of the completed offense that Crandall alone could take.

HOLDING
The Court ruled that an agreement is not an absolute prerequisite for attempted joint monopolization.

Analysis

• The Court is really simply straining to make § 2 fit conduct of which it does not approve. There appears to be absolutely no danger of achieving a monopoly when Braniff declined to participate.
• In other similar situations, the DOJ has alleged mail fraud and wire fraud; the FTC has the most leeway in prohibiting this conduct, since F.T.C.A. § 5 is broader than the Sherman Act.
• In re Stone Container Corp. (FTC 1998) at 342. The FTC used a consent decree to prohibit Stone Container from suspending production at its linerboard mills and buying excess inventory from rivals, alleging that there were signals to rival firms to join in a coordinated price increase. The expensive suspension and purchase of excess inventory ($26M) was necessary because Stone had previously attempted and failed to raise prices in the face of rivals with excess capacity.

The more complicated and arbitrary seeming price movements are, the more you wonder if it’s a negotiation, not merely a simple leader-follower behavior.

• Examine cost increases (or alleged cost increases).
• Enjoin announcements of future price increases, which inhibits the firms’ ability to negotiate, although it may be problematic when combined with disclosure obligations and attempts to use the capital markets.

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