Thursday, June 26, 2008

Money in the Air, Five Airlines Fined for Conspiring

Air France, KLM, Cathay Pacific, Martinair, and SAS, all of which are national airline companies have been charged a whopping total of $504 million dollars after being involved in a conspiracy to fix cargo rates throughout the entire industry. The rates were higher, and eliminated competition. However, the problem with the entire situation is that consumers were the main victims. According to Scott D Hammond, deputy assistant attorney general in charge of criminal enforcement for the department's anti-trust division, consumers and American businesses were the ones to pick up to tab for the increase.
Similar penalties have been faced by other airlines in the past. Should heavier restrictions be made in order to keep this problem from reoccurring?


Greg Delemeester said...

Katie, do you think the US Justice Department should impose heavier fines to deter other potential collusive agreements?

This raises an interesting point: are all collusive agreements between sellers bad (and by "bad" I mean "inefficient")?

Collusive agreements between sellers (called "cartels") tend not to be very stable because each member has a strong incentive to cheat on the agreement. See your Krugman text for more on cartels.

katiedickson said...

I don't necessarily agree that the US Justice Department should impose heavier fines to deter the potential collusive agreements. However, when I first posted this topic, I would have thought differently. With a better understanding of the specific agreements (cartels) I see that these agreements are sometimes a benefit to the industry. As far as efficiency goes, they often work in the favor of the companies as well as the overall industries. I have worked for companies before that break small laws and pay the fines because the overall benefit of the action of breaking that law was higher than the cost of the fine.
It is situations like these that I think the laws are created but expected to be broken. And making more strict laws would just hurt the industries in the long run.