Monday, October 31, 2016


Adam Levine-Weinberg posts (30 October) on Motley Fool HERE 
The Supposedly Nefarious Story of Intrigue Behind the American Airlines-US Airways Merger
Three years after the American Airlines-US Airways merger was approved, it's hard to look back and claim the deal hurt competition. Yet that's just what one recent piece of investigative journalism did.
The article also concludes that the merger has had the negative effects originally predicted by the DOJ, most notably, tacit (or even active) collusion between the airlines to restrict capacity and drive up fares.
The truth is quite different, though. While American Airlines and US Airways certainly lobbied on behalf of the deal, they also made significant concessions to address the DOJ's concerns….
… In November 2013, when the DOJ decided to settle the antitrust case, you could at least make a plausible argument that the merger would make it too easy for the big airlines to tacitly collude. Executives at American, Delta, United, and even Southwest have all talked about the industry's commitment to capacity discipline (i.e., slow enough growth that fares stay high).
After two years of declining airfares, it's pretty clear that airlines don't have much pricing power and aren't colluding to drive up prices. …
… This is a textbook example of Adam Smith's "invisible hand" at work. Airline executives all wanted to keep fares high -- yet in their efforts to maximize their earnings, they ended up driving fares lower, helping consumers.”
Very Interesting article about how markets work. Some participants may want to raise VISIBLE prices by expensive mergers of the big players and act accordingly. Other participants for other reasons may want a major component price in aviation - VISIBLE fuel costs - to fall for disconnected reasons - a major player (Saudi Arabia) in the quasi-monopoly called OPEC - decides to raise output that lowers VISIBLE prices of oil - and is so influential that VISIBLE prices do fall. 
What then does the ao-called, mythical metaphor of “an invisible hand”, falsely attributed to the wholly innocent Adam Smith (1723-90), have to do with this explainable phenomenon?
Answers: Nothing!

There is nothing invisible in visible prices. That is how markets work, through VISIBLE prices. They cannot work without them.


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