National Market for Air Travel Inappropriate for Analyzing Merger

by Jeffrey May, CCH Trade Regulation Reports

A private suit for a preliminary injunction blocking the merger of United Airlines and Continental Airlines was properly dismissed, the U.S. Court of Appeals in San Francisco has ruled in a not-for-publication decision. The plaintiffs –airline travelers and travel agents –failed to define a valid relevant market for purposes of evaluating the competitive effects of the transaction. Denial of the plaintiffs’ motion for preliminary injunction (2010-2 TRADE CASES ¶77,187) was affirmed.

Defining and proving the relevant market for antitrust analysis was a “necessary predicate” to the plaintiffs’ success on the merits of their Clayton Act claim, the court explained. The court rejected the plaintiffs’ assertions that the district court erred in rejecting their proposed national market in air travel. The transaction would be more appropriately evaluated using a “city-pair” market. The city-pair market, which was endorsed by the district court, could satisfy the reasonable interchangeability standard.

According to the court, in defining the outer bounds of a relevant antitrust market, “the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it” was considered. To meet this standard, products did not have to be perfectly fungible. However, they had to be sufficiently interchangeable that a potential price increase in one product would be defeated by the threat of a sufficient number of customers switching to the alternate product. A national market in air travel did not satisfy this standard. A flight from San Francisco to Newark was not interchangeable with a flight from Seattle to Miami, the court noted. No matter how much an airline raised the price of the San Francisco-Newark flight, a passenger would not respond by switching to the Seattle-Miami flight.

Malaney, CA-9, ¶77,463

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