Consumer Advocates Want the DOJ To Move Against JetBlue-Spirit Merger

EconEye Admin

3 years ago

The Justice Department will decide soon whether to block the JetBlue-Spirit Airlines merger. Consumer advocates say it would reduce competition in the air travel market, leading to fewer choices for travelers and higher fares. The airlines argue the merger will be good for competition, and bring lower fares.—npr.org

Answer the following questions to check your understanding of the story.

Why might the merger lead to higher fares on JetBlue-Spirit Airlines flights?

The merger might lead to higher fares on JetBlue-Spirit Airlines if _____________.

a) the merger raises the total fixed costs of the new merged airline

b) the new merged airline decreases its workforce

c) demand for JetBlue-Spirit flights decrease and demand for Delta and United flights increase

d) reduced competition means that the merged airline operates more like a monopoly

Wrong! - How does an airline determine the air fare in a competitive market and in a monopoly? How do changes in fixed costs and variable costs influence the air fare?

Well Done! - If the merger reduces competition and the new merged airline operates more like a monopoly, then the number of travelers decreases and air fares rise.

Why would the Justice Department block the merger between JetBlue and Spirit?

The Justice Department would block the merger if _____________.

a) the merged airline plans to cut its workforce

b) the merged airline substantially decreases the HHI of the airline industry

c) the merged airline plans to raise air fares

d) the merger substantially lessens competition

Wrong! - Under what circumstances does the Justice Department block a merger? Are mergers blocked because of job cuts, increases in air fares, or changes in the industry HHI?

Correct! - The Justice Department would block the merger if the merger substantially lessens competition. It would make this decision based on the airline industry’s HHI before and after the merger.

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