I don’t dispute the claim about the concern of antitrust law being consumer surplus, or anything else you said. I think my use of the phrase “begs for the type of interference” was poorly worded. What I meant was that the *subjectivity* inherent in determining consumer surplus invites political speculation and interference.

I don’t think anyone seriously disputes my (and Keith’s) claim that antitrust is ultimately concerned with consumer surplus rather than with shareholder wealth-maximization. If shareholder interests were paramount, antitrust would embrace mergers to monopoly and collusion-facilitating combinations, both of which benefit the shareholders of the surviving firm.

I do not believe, though, that a desire to maximize consumer surplus “begs for the sort of interference that Kohl is proposing.” Kohl seems to be saying that he (or someone similarly situated) can tell that this merger would reduce consumer surplus, because it will lead to a reduction in service levels. I don’t think he’s in a position to make that call (nor is any apolitical economist from GMU or Mizzou). Like you, I believe the market will tell us which business models produce the most consumer surplus. Assuming competition among firms (and thus no ability to produce supracompetitive profits), those business models will be the ones that generate the most profit. Thus, if AirTran can produce more profit by eliminating Midwest’s wide seats, and if there’s no reason to believe AirTran’s profit enhancement is due to an exercise of market power, consumer surplus is enhanced by having AirTran buy Midwest and eliminate the wide seats.

For these reasons, I believe the analysis here boils down to two questions: (1) Is AirTran willing to pay a significant control premium for Midwest? [Yes--which suggests that AirTran believes it can wring more value out of Midwest's assets.] and (2) Is this merger likely to substantially increase the surviving firm’s ability to reap supracompetitive profits? [No--which suggests that the profit-enhancement that's attracting AirTran is the result of giving consumers more of what they want.]

That statement bothers me. It may be the law, as the courts have interpreted it, but it begs for the type of interference that Kohl is proposing.

Who can objectively decide if a trade-off reducing particular consumer benefits in favor of shareholders is also reducing aggregate consumer welfare in an anti-competitive manner? In other words, would ATA going cold Nabisco instead of warm Famous Amos be anti-consumer or good business? I would say that the people in the best position to weigh that are, in order:

1) God
2) ATA’s management
3) A competing airline’s management (if they’re really good)
4) The fine people at the DOJ (with the help of apolitical economists from GMU, Mizzou, etc.)
5) Just about anyone else with a college degree
6) A U.S. Congressman or Senator

Next question: If Midwest decides, as a result of this takeover threat, to end the cookies as part of its takeover defense, should ATA be liable for consumer harm under a similar anti-trust theory?

Final question: Can a consumer sue someone with the market power to do so for better service? Or does one get to use the government to challenge only what is visible instead of what is not?

Re market power, it seems to me that the airline industry is oligopolistic enough that pretty much every firm possesses market power to some degree. No one is entirely a price taker. And Midwest is the leading firm in the Milwaukee market and therefore surely possesses some market power.

One other point to bear in mind: the Milwaukee airport is only about an hour away from Chicago’s northern suburbs and therefore is a realistic alternative to O’Hare for many travelers (particularly those who live in between the two in places like Glenview and Kenosha), just as Newark and JFK (which are more than an hour apart, though closer in miles) compete in the same New York metro market broadly defined. If you think of the two firms in this way, then Air Tran’s LaGuardia – Chicago route competes with Midwest’s Newark – Milwaukee route, which suggests much more overlap than your original post assumes.

At any rate, I have confidence in the fine people working at DOJ to analyze all of this very carefully. If the deal is ultimately permitted, perhaps it might be conditioned on the preservation of Midwest’s “big arm chair product” or on a reduction in prices charged on Midwest’s routes.

Is there enough overlap to “invite some scrutiny”? Sure. Senate hearings? No way. (Your last paragraph suggests you agree with that.)

As for your point about AirTran’s reduction of services, I think the key point is that absent some evidence that this merger will notably enhance the merged company’s market power, the likely cutting of services doesn’t raise antitrust concerns. AirTran is almost certain to reduce the level of service (and the price) because it believes that’s the best way to maximize profits. If it does so and there’s no reason to believe its profit enhancement is due to an exercise of market power but is instead the result of better responding to consumer desires, then the service reduction is, from an antitrust standpoint, irrelevant. Absent an exercise of market power, the only way the merged company could increase profits would be to enhance efficiency — that is, to provide more of what consumers want at a lower price. You’re absolutely right that consumer surplus, not shareholder wealth-maximization, is the ultimate goal. But if there’s no chance of supracompetitive profits occasioned by this merger (as there seems not to be, given the minimal competition between the two firms), then shareholders’ and consumers’ interests are perfectly aligned.

My point, I guess, is that it’s not enough to say that services will be reduced. If service-reduction occurs as a result of profit-seeking and there’s no reason to believe the service-reducing firm is exercising market power, then antitrust assumes the service-reduction is a good thing.

“We understand it might be good for AirTran’s own business interests and bottom line, but ….”

Moreover, if it’s true (as both you and Senator Kohl seem to agree) that the deal would mean an end to Midwest’s comfy seats and fresh-baked cookies, then doesn’t that mean the deal is potentially anti-consumer (assuming prices aren’t reduced)? The possibility of producing higher short-run profits for Air Tran isn’t a reason to ignore the effects on consumers. If Midwest’s management could do better for shareholders by reducing amenities and/or raising prices, then shareholders could sue derivatively to make that happen. But so long as Midwest’s consumers are benefitting from these policies, it seems proper for them to invoke antitrust as a way to block a deal that could harm consumers even if it would benefit shareholders.

A further complication may be the subsidies (if any) that Wisconsin or Milwaukee have given to Midwest in (perhaps implicit) exchange for the high level of service that Midwest offers. Assuming the federal effort to block the deal fails, perhaps the deal might be challenged (either ex ante or ex post) as a matter of Wisconsin antitrust law.

That said, it is fairly unusual for deals of this sort to be reviewed by the Senate Judiciary Committee rather than the antitrust specialists at DOJ. In its Hart-Scott filings, Air Tran will have to make the case to DOJ that the merger is in the interest not only of Midwest’s shareholders but also of its consumers, which means it must show either how prices will drop, or how flight choices and/or other amenities will increase.