This past Valentine’s Day, American Airlines and US Airways announced their intention to merge—but now, six months later, the federal government wants to cancel the wedding.
Unexpectedly, the Department of Justice has filed an antitrust lawsuit to block the merger, citing potential “harm to American consumers.”
The airlines’ merger proposal was based on ten months of intense negotiations in which CEOs dealt with complex relationships among labor unions, bondholders, and other financial stakeholders. If all that ends up in the wastebasket, so do the hopes and plans of American Airlines, which is emerging from bankruptcy, and US Airways, both eager to achieve economies of scale that could help them compete with Delta, United, and Southwest.
In America, big companies cannot merge without government permission. For the largest firms especially, it’s a tortuous and inscrutable process with no guarantee of success—just ask AT&T, which wrote off $4 billion when its planned merger with T-Mobile in 2011 was barred by the Department of Justice.
Conventional wisdom holds that business mergers are not private matters—final authority must rest with antitrust regulators who can monitor, limit, and even forbid mergers and acquisitions that supposedly threaten the economy. Pursuant to the Hart-Scott-Rodino Act of 1976, businesses exceeding a certain size must ask federal permission to merge, and then endure a legal gauntlet to get an answer.
In this “Mother may I?” system, each proposed merger is automatically delayed thirty days—longer if the government requires it—while the DOJ and Federal Trade Commission sift through company documents and emails, compile statistics, run computations, and consult experts. Out of all the proposed mergers subjected to this legal scrutiny, only a select few are blocked. Which ones? Those that promise to be the most successful.
Antitrust enforcers want us to fear that mergers, if left unregulated, would allow large companies to destroy competition and hurt consumers. They use scary terms like “barriers to entry” and “monopoly prices” to paint a dire picture.
Into this dangerous landscape rides the antitrust cavalry, flags flying and guns blazing, offering itself as a brave guardian of economic freedom against rapacious capitalism.
Now let’s switch off this Hollywood movie and look at the facts. So long as government stays out of the picture—that means no protected monopolies, franchises, subsidies, licensing schemes, bailouts, or other forms of coercive favoritism—merging companies have only one avenue to success. They need to offer products and services that people want to acquire through voluntary, win/win transactions.
In a free market, we have nothing to fear from mergers, no matter how big the resulting enterprise. Just as a student cannot be “too smart” or an individual “too healthy,” a business cannot be “too successful” or “too profitable.”
If a particular company offers the most popular smartphones, cars, or airline tickets, then it may come to dominate its market. But no business, whatever its size, can let quality slip or raise prices too far above the cost of production without inviting competition from two sources—existing rivals, and venture capitalists who are constantly searching for opportunities to finance startups.
Regardless of what shape an industry takes, my only right as a customer is to buy or reject the products offered, at the prices offered—and it’s those choices that determine whether any merged company fails or succeeds.
For example, the 1999 merger between Exxon and Mobil enabled the company to streamline operations and combine exploration and production capacities, despite a government-mandated asset selloff. But ExxonMobil’s resulting success comes with no guarantees for the future, if the company lets product quality slip or raises prices to levels that Shell, Chevron, or some oil startup can undercut.
The bottom line is that corporations have a moral right to merge without government permission—but in our unfree economy, that right is not legally recognized or protected.
In March, just a month after American Airlines and US Airways announced their plans, both companies’ CEOs had to bow and scrape before a Senate panel, while the Government Accounting Office sounded warnings of projected changes to the airline industry.
Meanwhile, a New York Times editorial urged the DOJ not to approve the airlines’ merger “without requiring some concessions, like giving up gates and takeoff and landing slots.”
Sure enough, it was soon reported that regulators were holding meetings with the defenseless airlines. We can only surmise that the airlines resisted whatever forms of legalized extortion may have been proposed in those meetings, leading directly to the lawsuit that now threatens to kill the merger.
Antitrust laws deny companies the right to organize their business as they see fit. That’s an injustice we need to identify and condemn, undistracted by the mythical dangers of private mergers.