Monopolizing Trade: Airline Ticket Change Policies and the Thwarted Secondary Market

Abstract

Suppose you have a domestic economy-class airline ticket that you can no longer use. In the 1980s and early ’90s, there was a secondary market in domestic airline tickets, carried out openly in newspaper classifieds. Though many tickets were nominally nontransferable, back then, the airlines didn’t check every passenger’s name. Problem solved. But now, American, Delta, and United will charge you a $200 fee to change the ticket. And the airlines have the Transportation Security Administration to help them enforce nontransferability.

There are three possible responses to this problem, each with different advantages and disadvantages. The first response is antitrust litigation. Many passengers are uninformed about change fees or irrationally optimistic about the likelihood of changing their tickets. On a route where an airline holds a monopoly share, a change fee operates as a hidden surcharge, exploiting these passengers’ irrationality and allowing the monopolist to maintain an artificially low advertised fare. This practice unfairly represses competition.

The second response is federal legislation. The case of airline tickets is analogous to that of event tickets. Both experience fluctuating demand and are worthless after a certain date. But event tickets are extensively traded on online secondary markets, and numerous states have even passed laws to protect and develop this trade. These laws serve as a model for a federal law that could restore the airline ticket secondary market.

The third response is federal regulation. Regulations already require airlines to include taxes and fees in advertised fares and disclose charges for baggage and other add-ons. These could readily be extended to require disclosure of change fees at the point of sale.

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By uclalaw