SAYED A. HUSSAIN, University of Toronto
Email: sayed.hussain@utoronto.ca
SERKAN BAHÇECI, J.P. Morgan Chase & Co. - JPMorgan Asset Management
Email: serkan.x.bahceci@jpmorgan.com

This paper develops a model to explain and analyze the evolution of network structure (connectivity) and design (flight frequency, aircraft size, prices) in the post-deregulation U.S. airline industry. We show that legacy carriers choice of Hub-and-Spoke networks and the emergence of low cost carriers (LCCs) operating Point-to-Point networks were optimal choices. We demonstrate that LCCs need not necessarily charge lower prices, and their entry impacted legacy carriers' prices in all markets, even those where there is no direct competition. We show that in response to entry, legacy carriers optimally lower flight frequency, leading to longer wait times between flights for which passengers are compensated by lower prices; conversely, if the entrant later exits, legacy carriers raise flight frequency and therefore prices, which may erroneously appear to be predatory pricing when in fact it is the consequence of optimal network redesign. Finally, we demonstrate that even though low cost carriers lower prices, total social welfare with competing network structures can also be lowered. In other words, the poor financial performance of legacy carriers is not due to their inefficiency per se but due to an efficient Hub-and-Spoke network undermined by competition from inefficient Point-to-Point networks. We argue that social welfare may have been, and still can be, higher if entry and exit in air passenger travel industry is regulated.

HANS VEDDER, University of Groningen
Email: h.h.b.vedder@rug.nl

The EC and it's Member States struggle to draw the line between markets and public interests. Traditionally, these two are contrasted, most prominently by the continental Member States and followed by a conclusion that public interests require public governance. Some of this public governance takes the form of a public law framework within which self-regulation by the members of a profession occurs. We also see a more subtle version of self-regulation, whereby regulators are so dependent on specific information from the professions concerned, that they effectively become captive regulators. In those circumstances, the degree to which the public interest, rather than the interest of the professions concerned, is actually served may be doubted.

This holds true even more where legislators, both at the EC and the Member State level, are moving the line between markets and public interests towards the market side. It is uniformly recognised that public governance is not the blanket solution for market failures and the introduction of market mechanisms may actually increase consumer welfare. The contrast between public interests and markets may therefore also be rephrased into a citizens versus consumers antithesis. EC (competition) law plays a prominent role in this debate in that it requires member state regulators to rethink how and to what extent their actions serve the public interest. This role of EC (competition) law requires a fundamental rethinking of the market (consumer) and public interest (citizen) antithesis. The hypothesis central to this paper is that EC (competition) law can serve as a democratic instrument to increase legitimacy whilst refining the line between markets and public interests.

JUSTIN J. HAKALA, Wayne State University Law School
Email: justinhakala@gmail.com

The Federal Trade Commission has historically been given a degree of deference by the courts, particularly with regard to its construction of section 5 of the Federal Trade Commission Act. This deference is supported so long as the section 5 actions are solely within the province of a responsible Commission charged with the protection of consumers and competition. But what if those enforcement actions trickled down to state Little FTC Acts, which incorporate section 5 jurisprudence and confer private actions for treble damages on parties that previously had to work within the strict confines of the antitrust statutes? That concern, raised by Chairman William Kovacic, threatens to undermine the principle of affording deference to the Commission and to handicap the agency's ability to be responsive to ever changing competitive markets. Far from disposing of the agency's utility, however, the threat of section 5 incorporation into state Little FTC Acts is overstated.

JONATHAN B. BAKER, American University - Washington College of Law
Email: jbaker@wcl.american.edu

This comment on a forthcoming article by Keith Hylton and David Evans explains why considerations of "dynamic competition" do not argue against antitrust enforcement. While the prospect of achieving monopoly may foster innovation, that observation misleads as to appropriate antitrust policy unless qualified by the observation that the push of competition generally spurs innovation more than the pull of monopoly. Moreover, the longstanding doctrinal rule that mere monopoly pricing is not illegal should not be read as demonstrating that antitrust law values monopolies for their role in promoting innovation.

ROBERT H. LANDE, University of Baltimore - School of Law
Email: rothland@erols.com
JOHN M. CONNOR, Purdue University
Email: jconnor@purdue.edu

This chapter examines how high cartels raise prices on average and what this should mean for the current criminal fine levels in the U.S. Sentencing Guidelines. We utilize two distinct data sets (economic and other studies, and verdicts in final cartel cases) and find that cartels have caused average overcharges in the range of 31 to 49 percent and median overcharges in the range of 22 to 25 percent of affected commerce. We conclude that the current Sentencing Commission presumption that cartels overcharge on average by 10 percent is much too low, and the current levels of cartel penalties should be increased significantly.