Antitrust: Cartel and Federal Trade Commission

The purpose of this paper is to discuss antitrust law with regard to federal regulations. In the form of a case study, this paper will examine the legal obstacles faced by the merger proposal between US Airways Group Inc. and American Airlines’ parent corporation AMR. The focus of the paper is to examine the legal hurdles posed by antitrust laws used to block the merger and then briefly explore possible ethical issues associated with allowing US Airways Group Inc. and AMR to merge. Antitrust Laws There are three core federal antitrust laws in effect today in our US legal system.

They are the Sherman Act, The Federal Trade Commission Act, and the Clayton Act (“Antitrust”, n. d. ). The Sherman Antitrust Act (Sherman Act, July 2, 1890, ch. 647, 26 Stat. 209, 15 U. S. C. § 1–7) is an antitrust law primarily aimed at prohibiting the formulation of monopolies by making them a felony offense. As the Sherman Act evolved the US Supreme Court decided that monopolies in and of themselves are not bad and do not automatically violate the Sherman Act. Instead, it is the particular actions taken to obtain or maintain monopolistic positioning that is illegal (“Sherman”, 2008).

The Federal Trade Commission Act (15 U. S. C. § 45: US Code – Section 45: Unfair methods of competition unlawful; prevention by Commission) has a primary duty of prohibiting actions within commerce that are deemed unfair to competition (“15 U. S. C. § 45”, n. d. ). The Clayton Act (15 U. S. C. A. § 12 et seq. [1914]) is an addition to the antitrust laws primarily used today to prohibit certain types of business practices making them illegal when their usage severely restricts competition and/or creates a monopoly.

The practices specifically addressed in the Act are price discrimination, making it illegal to sale the same product to different people in the same market at different prices; tying and exclusive dealing contracts, making it illegal to forbid a shopper from shopping with competitors; corporate mergers, the acquisition of competing head to head companies by one company; and interlocking directorates, the members of which are common members on the boards of directors of competing companies (“Clayton act”, 2008).

The Enforcers The federal antitrust laws are enforced by the Federal Trade Commission and the U.S. Department of Justice. They both open up and conduct antitrust investigations. In situations involving the airline industry the Department of Justice has jurisdiction in matters pertaining to antitrust laws. There are other regulatory agencies that also must give approval before certain mergers can take place. In these instances The Federal Trade Commission and the Department of Justice provide support to the agencies. Individual states may also work in conjunction with the two federal agencies to enforce its state’s antitrust laws.

Additionally, the states can file antitrust lawsuits on behalf of its citizens or the state. This is usually done through the state’s attorney general office. Individuals and businesses can also initiate antitrust complaints and file suits to have the antitrust laws enforced (“The federal government”, n. d. ). Mergers Section 7 of the Clayton Act addresses the antitrust laws concerning mergers. Mergers are not inherently bad or illegal. So long as the merger doesn’t cause a significant increase in prices, a serious reduction in quality of goods and services, and doesn’t deter innovation.

Mergers become a problem when they significantly lessen competition or lead to a monopoly. When head to head competitors propose a merger it will usually sets off antitrust alarm bells that most likely will lead to an investigation by one of the federal agencies (“Mergers”, n. d. ). External Obstacles In 2005, US Airways and AMR publically proposed a merger that was met with a great deal of resistance. The government has the responsibility to regulate mergers to ensure the merger doesn’t violate antitrust laws.

This merger had to be reviewed by several agencies such as the U.S. Justice Department, the U. S. Department of Transportation, the Air Transportation Stabilization Board, the Security and exchange commission, and U. S. Bankruptcy Courts. This was a very high profile merger proposal and it was met with a great deal of opposition (Cobb, et al. , 2006). The airline eventually won Department of Justice approval but had to agree to give up some airport slots to clear antitrust concerns. Both airlines agreed to the terms in order to keep the merger proposal alive (Majcher & Russell, 2013).

Because of a Philadelphia to London route the proposed merger also had to gain some clearance by the European Commission. The airlines once again agreed to give up the route to alleviate any international anti-competitive effects (Knibb, 2013). Ethical Concerns The Department of Justice and six state attorneys-general together filed a suit against the merger arguing that the merger would lead to an increase in airfare, in fees, and also limit choices also the merger agreement will cost workers jobs as American Airline was forced to relinquish hub status at several airports.

This merger really benefits the two airlines but leave hundreds of workers out of jobs and taxpayer subsidized airport infrastructure customizations will lose return on investments (“The airline mergers”, 2013). Higher airfares as a result of the merger would put the merger in violation of antitrust not only would it be illegal but it can also be considered unethical. Conclusion There are laws in place to protect consumers and businesses from anticompetitive behavior. They are called antitrust laws (“antitrust laws”, n. d. ).

When US Airways and AMR announced their intention to merge into one company the merger deal was scrutinized by the Department of Justice and regulatory agencies to see if the merger violated any antitrust laws (Cobb, et al. , 2006). The two airlines were forced to agree to certain concessions in order to gain the approval of the federal government, regulatory agencies and courts (Majcher & Russell, 2013). This paper doesn’t show any evidence that the merger was unethical however, many interested parties attempted to block the merger on the grounds that the merger would give the company an unfair advantage over rivals and passengers.