Carve-Outs Under Airline Antitrust Immunity: In the Public Interest?

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Jan Brueckner, Stef Proost, Sep 15, 2009

Prohibitions on cross-border airline mergers preclude full integration of U.S. and foreign carriers, but a grant of antitrust immunity (“ATI”) allows substantial cooperation between a U.S. airline and its foreign alliance partners. Immunity allows collaboration in the provision of international service in two principal types of markets. One market type involves travel between smaller U.S. and foreign cities, which requires an “interline” trip that crosses the networks of the two alliance partners. The other market type involves nonstop travel between the partners’ (larger) hub cities, where overlapping service allows the trip to be made using either the U.S. airline or its partner. Immunity has often been granted in conjunction with an open-skies agreement between the United States and the home country of a partner airline. The effects of alliances and ATI on airfares have been extensively investigated in the economics literature…but despite the centrality of carve-outs in the latest ATI decisions, the economics literature on alliances offers no treatment whatsoever of this topic.