It is next winter, and a new airline called Global Snow has announced that it will start service between Aspen and several out-of-state markets. This make-believe scenario has its share of doubters. They believe that the new airline will find a way to collude with United to create an effective monopoly on such service.
The free-marketeers say that the market will prevail and needs no regulations. The doubters say that the big boys — offered a duopoly in which it can “signal” fares and thus set prices — will find a way to offer higher-than-expected fares.
Another group says it doesn’t matter. There’s a limit to any pricing. Nobody can force consumers to pay more than they want (except for rigid monopolies, such as utilities). They say combatants will see the futility of conspiring and can be trusted to keep fares within reason.
Welcome to the rumbling and politically charged debate over how free the “free market” really is. Just late last week, the U.S. government won a deal in which one beer distributor agreed to sell off some assets so that its acquisition of another wouldn’t violate monopoly laws.
The argument over the freedom of the “free market” has touched down in Aspen more times than most people realize, including a 1985 U.S. Supreme Court case.
The debate goes back 1890. U.S. Senators, looking for rules to govern the ensuing rumble, agreed to pass the first of a set of antimonopoly laws. The Sherman Antitrust Act didn’t know exactly what it was targeting, so its language was vague: to prohibit “every contract, combination…” or “conspiracy, in restraint of trade.”
Today, such a proposal would spark a huge partisan brawl, fueled by dueling ideologies. Not back then. It won approval in the Senate 51-1, and a thumbs-up in the House 242-0 before its approval by President Benjamin Harrison.
In the theoretical airline scenario involving Global Snow, any citizen who could prove that Global Snow and United had discussed price-fixing could run to U.S. court in Denver and sue. In the real world, airline price-fixing doesn’t work that way. The airlines “signal” each other, sort of like a bridge game, using sign language in their instantly updated route-and-fare computers to communicate their intent. For example, one would never code a fare “FU” to retaliate with a competitor — except for one that did exactly that in a case in the 1980s.
Antimonopoly laws were written for the same reason that football rules are constantly updated. Football needs boundaries, from the out-of-bounds stripes to offside, illegal formations, chop-blocks and fouls.
They don’t always work, such as the celebrated case in which a team was accused of creating a bounty system to deliberately injure opponents’ players to knock them out of a key playoff game.
Most monopoly law comes from “precedents,” or standards written by justices and judges in an effort to create simple, easy rules. “Predatory pricing” involves setting prices below cost in an attempt to injure or kill a competitor. An “illegal tying” arrangement involves forcing a consumer to buy something in order to qualify for something else. The “essential facilities doctrine” deals with key sports facilities and railroad yards.
Then there is “duty to deal,” which brought two Aspen ski areas to blows in a 1979 case that ended up before the U.S. Supreme Court.
Three of the four ski mountains were then owned by what is now the SkiCo The fourth, Aspen Highlands, was separately owned. They cooperated to sell a four-mountain combined ticket. The “take” was split by random samples of the skiers using each mountain on random days.
But the SkiCo decided Highlands was enjoying a “free ride” on its superior marketing and reputation. Instead of the traditional 15 percent or so that Highlands would get, the SkiCo offered a 12 percent take-it-or-leave-it deal. Highlands refused and went to court, accusing the SkiCo of attempting to corner the market for skiers in Aspen.
The case took six years to get from a federal jury, which decided in Highlands’ favor, to the Supreme Court. The justices in March 1985 took just their usual one hour to hear the case.
The SkiCo had high hopes of winning the case on appeal. The Supremes’ decision to take the case was a good sign. They might agree with the SkiCo’s argument that Highlands was proposing that the SkiCo had a ridiculous “duty to deal” with a competitor under existing law.
Instead, a series of small missteps and “dirty tricks” killed the case. In one instance, the SkiCo was accused of “airbrushing” Highlands entirely off the map of Aspen’s ski areas. The court decided 8-0 in Highlands’ favor. The total judgment, for about $11 million, is peanuts by today’s standards.
Aspen eventually became a “legal” monopoly anyway. Highlands’ owner Whip Jones gave his ski area to Harvard upon his death. The school, seeing little use for it, sold to a developer, and it eventually landed in the hands of a welcoming SkiCo.
Today, the ultimate cost of a ski vacation looms as the largest threat to the industry.
Monopoly laws loom large in other areas, including the growth of social networks and software giants. There is fair play in the free market, but competitors have a natural tendency to want to gain unfair advantage. That’s more a fact of life than of politics.
The writer (email@example.com ) is a founder of the Aspen Daily News and appears here Sundays.