Antitrust Law Daily Consciously parallel conduct in oligopolistic airline industry insufficient as Sherman Act violation
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Friday, December 9, 2016

Consciously parallel conduct in oligopolistic airline industry insufficient as Sherman Act violation

By Edward L. Puzzo, J.D.

Airlines that used posted fare-rule changes to adjust their own fare rules may have engaged in consciously parallel conduct in an oligopolistic industry, but that was insufficient to plead a violation of Section 1 of the Sherman Act without additional indications that their actions were the product of an agreement, the federal district court in San Francisco has ruled (Prosterman v. American Airlines, Inc., December 8, 2016, Chesney, M.).

The plaintiffs were 41 travel agents alleging antitrust violations by three major airlines—American Airlines, United Airlines, and Delta Air Lines—as well as Airline Tariff Publishing Company (ATPCO), owned by those and other airlines. The Plaintiffs alleged that the defendants engaged in price-fixing by conspiring to change Category 10 airfare rules, using ATPCO as a coordination facilitating device, to prevent travelers from being able to sequentially combine on a single ticket non-refundable one-way fares to multiple cities in order to reach their final destination less expensively than via direct flights.

Both ATPCO and American Airlines moved to dismiss the complaint. On July 22, 2016, after a hearing on the motions, the complaint was dismissed with leave to amend. Subsequently, the plaintiffs filed a First Amended Complaint (FAC) and the defendants again moved to dismiss.

The court noted that the allegations in the FAC showed greater specificity as to the timing of the airlines' allegedly coordinated actions. The allegation that the airlines made the subject change in mid-March 2016 sufficed to allege parallel conduct, the court stated; however, parallel conduct, or even consciously parallel conduct, was insufficient to state a claim under Section 1 of the Sherman Act without an additional showing that the parallel conduct was the product of an agreement.

In the FAC, the plaintiffs alleged in greater detail their charges that the airlines used ATPCO’s fare information and their computer reservation systems to immediately analyze each other’s fare rules, restrictions, and price changes. The plaintiffs further alleged that four carriers controlled 80 percent of the market in a tight oligopoly, and had imposed the fare combinability restrictions at a time when jet fuel, their single greatest cost component, were at record low levels.

Despite the expansion of the plaintiffs' factual allegations, the court ruled that the allegations remained insufficient to plead a plausible suggestion of conspiracy.

Oligopolies and supra-competitive pricing. Due to the very fact that the commercial passenger airline industry is an oligopoly, the court explained, a single firm’s change in price will have a noticeable impact on the market and its rivals. Consequently, "oligopolists may maintain supra-competitive prices through rational, interdependent decision-making, as opposed to unlawful concerted action, if the oligopolists independently conclude that the industry as a whole would be better off by raising prices," In re Chocolate Confectionary Antitrust Litig., 801 F.3d 383 (3rd Cir. 2015).

The factual allegations here did no more than show that the airline defendants used information obtained through ATPCO to quickly match or react to a competitor’s fare change, the court stated. Reacting to a competitor’s change by adopting the same or similar change, known as conscious parallelism, may produce anticompetitive outcomes, the court conceded, but it is lawful under the Sherman Act, the court ruled.

Plus factors. The court further found that "plus" factors were absent. The allegations did not support a finding that the defendants were aware of each other’s rule changes prior to those changes having been published, or that the fares they set for any given route were identical or substantially similar, the court found. Despite the plaintiffs’ reference to the apparent anomaly of increased fares during a time of record-low fuel prices, this could be attributable to the airline defendants’ independent determinations that they would be better off with higher prices, rather than attributable to an agreement not to compete, the court stated. In no way can their decision be characterized an "extreme action against self-interest" that would suggest a prior agreement, the court found.

Pleading facts that are merely consistent with a conspiracy are insufficient to plead a Section 1 Sherman Act violation where those facts are also consistent with permissible competition, the court stated. The court therefore dismissed the plaintiffs' first amended complaint.

The case is No. 3:16-cv-02017-MMC.

Attorneys: Joseph M. Alioto Sr. (Alioto Law Firm) for Cynthia Prosterman. Daniel Murray Wall (Latham & Watkins LLP) for American Airlines, Inc. John C. Dwyer (Cooley LLP) for Airline Tariff Publishing Co. Beko Osiris Ra Reblitz-Richardson (Boies, Schiller & Flexner, LLP) for Delta Air Lines, Inc.

Companies: American Airlines, Inc.; Airline Tariff Publishing Co.; Delta Air Lines, Inc.; United Airlines, Inc.

MainStory: TopStory Antitrust CaliforniaNews

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