Lenard & Adkinson Say Airlines' Venture Poses Serious Concerns
WASHINGTON, D.C. - Orbitz, the online travel agency formed by the five largest airlines, raises serious antitrust concerns, according to two Progress & Freedom Foundation experts whose article on the topic appears in the Spring 2002 edition of Antitrust, a journal published by the Antitrust Section of the American Bar Association. They recommend that the government require Orbitz to modify two aspects of its business agreement and monitor the company’s behavior and growth.
In their article, “Orbitz: An Antitrust Assessment,” Foundation Vice President for Research Thomas M. Lenard and Senior Policy Counsel William F. Adkinson, Jr. write that the most serious concerns are with the Most Favored Nation (MFN) provision and the promotional obligation found in the Charter Associate Agreement with its airline partners.
“The MFN provision of the Associate Agreement raises clear competitive problems and is likely to reduce competition in fare-setting and online ticket distribution,” Lenard and Adkinson write. “There is a serious risk that the MFN will inhibit selective or camouflaged discounting of fares, including discounting by members who feel forced to join to avoid discriminatory fees.” The promotional obligation raises concerns primarily because it “may be met by providing Orbitz fare listings, which are central to competition among distributors, on an exclusive or semi-exclusive basis,” they continue.
These competitive concerns “can be addressed without significant risk of reduced efficiency,” they conclude, by requiring Orbitz to “eliminate these competitively questionable provisions.” The government should check for signs of increased prices and reduced discounting, as well as for evidence of “the use of Orbitz [by the airlines] for collusive behavior.” The company’s growth should be monitored: “If Orbitz quickly becomes the largest online ticket distributor, the potential for improperly obtained dominance increases,” they write.
Lenard and Adkinson wrote a Progress on Point paper, "Revise Orbitz's Flight Plan: Serious Competitive Risks Outweigh Questionable Benefits," in June, 2001.
The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.