The United States has long grappled with corporate concentration, from the Gilded Age monopolies of Rockefeller and Vanderbilt to today’s airline industry. However, not all monopolies surface into a market in the same manner, with law and economics differentiating between pro-competitive monopolies that arise innocently due to efficient market growth and anti-competitive monopolies which emerge from practices that unfairly restrict competition, such as predatory pricing. Initially, the Department of Justice (DOJ) treated all natural monopolies — whether pro-competitive or anti-competitive — with equal scrutiny. In fact, in the landmark 1982 case United States v. AT&T, the Department of Justice ordered the breakup of AT&T under the Sherman Antitrust Act, not because of overt misconduct, but because its monopoly position — though achieved through natural and arguably pro-competitive means — was found to stifle potential competition.
However, the shift toward the consumer welfare standard, marked by the Supreme Court’s 1979 decision in Reiter v. Sonotone, introduced a key distinction: monopolies deemed pro-competitive, those that lower prices through economies of scale, were now permitted under antitrust law. This differentiation, namely the permitting of monopolies of any sort, has inadvertently harmed consumers by enabling network effects — a market externality common in communications, marketplaces, and transportation where as more consumers use a product, consumers face a higher and higher disutility to using a substitute product — and the abuse of monopoly power. As a result of the lax treatment towards monopolies, especially pro-competitive monopolies, there has been an increased consolidation within the United States airline industry, with the four largest firms of Delta, United, American, and Southwest controlling two thirds of the domestic airline market, which has come with a reduction in service quality that has hampered connection. Today’s major U.S. airlines exploit their market dominance and network effects to deter competition — conduct that mirrors the monopolistic behavior for which the DOJ rightly dismantled AT&T. Accordingly, antitrust enforcement should abandon the consumer welfare standard’s selective tolerance of ‘pro-competitive’ monopolies and return to the equal application of the Sherman Antitrust Act, as exemplified in the AT&T case — a precedent that supports breaking up today’s airline oligopoly.
The most common way the federal government monitors monopolization is through scrutinizing mergers and acquisitions. By analyzing the possible effects on market concentration and consumer welfare, the DOJ proactively prevents monopolies from forming. Likewise, if a merger had been deemed anti-competitive, the DOJ could reverse the merger and split up the firms into their pre-merger components. However, sometimes monopolies form “naturally” through market measures and internal expansion without necessarily engaging in illegal acquisitions. Firms can achieve this innocently through producing better goods at a cheaper price, often through economies of scale or innovation. While this method of acquiring a monopoly could improve social welfare, it is not the only way natural monopolies emerge. Excessive entry costs, entrenched networks, exclusive contracts, and predatory pricing below marginal cost deter and discourage potential competitors into entering the market. Furthermore, in many cases, it is difficult to determine whether a firm achieved these natural monopolies through superior efficiency or through malicious anti-competitive practices, much harder than determining ill intent with mergers. Also, unlike mergers, there had been little precedent on how to manage natural monopolies once they had emerged. While cases like Standard Oil v. United States (1911) established that purposeful restraint of trade in pursuit of monopolies are certainly illegal, the courts had given insufficient attention towards monopolies that arose due to pro-competitive efficiency gains.
However, in 1982, the DOJ set out to settle this ambiguity in their antitrust suit United States v. AT&T against a rapidly growing and consolidating communications market. By arguing that AT&T violated Section 2 of the Sherman Act — a clause forbidding the creation and maintenance of illegal monopolies — the DOJ called for the then world’s largest private corporation to divest from their major holdings. By breaking up the corporation into its subsidiaries, the DOJ aimed for increasing competition to improve market conditions, making future entry feasible for competing firms and improving the consumer experience.
Most interestingly, one important feature of the case was that it never discusses how AT&T achieved their monopoly. First, the complaint charges AT&T “with combining and conspiring to monopolize, attempting to monopolize and monopolizing,” but none of these accusations actually details malicious intent — the firm is illegal by nature of being a monopoly, full stop. United States v. AT&T reaffirmed the illegality of monopolies even when no intentional malpractice occurred. From this precedent, a firm that sets predatory prices, signs anti-competitive contracts, and utilizes strategic capacity production to achieve its monopoly will be punished the same as a firm who legitimately achieved its monopoly out of pure efficiency gains. The DOJ understood this tension, asserting that the litigators are “fully aware of the service that the Bell System has provided” and the societal good that comes from more efficient and higher quality output, but maintained their case. The DOJ justifies this by stating how easily a monopoly can abuse its power in the absence of competitors, insisting that once AT&T achieved their intense market power, the firm participated in “obstructing the interconnection” of competing communications firms by explicitly preventing substitute networks from forming. Now that AT&T had attained their monopoly, there were no challengers to moderate the firm’s behavior, necessitating the DOJ’s intervention.
However, since then, antitrust officials have shifted focus. Concerned with the lack of clear framework on how to litigate antitrust cases and partially in response to the AT&T breakup, University of Chicago Law professor and high ranking DOJ official Robert Bork proposed the “Consumer Welfare Framework” in which mergers and natural monopolies must be permitted as long as they improve consumer welfare — mainly measured through reduced prices and higher quality goods. Bork highlights that economies to scale and other efficiency measures can allow a monopoly to produce at a lower price than possible competitors. He uses this to argue that even if a corporation achieves a monopoly, it should not be punished because of the benefit that society gains from high quality, cheap goods. He further argues that by punishing an innocent natural monopoly, antitrust officials will disincentivize firms from improving their efficiency and gaining higher sales, and thus profits. Bork asserts that this will reduce corporations’ drive towards better, cheaper products in fear of DOJ intervention, in turn reducing consumers’ welfare — the exact opposite of antitrust officials’ goal.
In the original United States v. AT&T case, antitrust officials targeted the abusive practices that result from entrenched network effects. However, consumer welfare has driven antitrust policy since, leading to decreased monopolistic scrutiny despite clear illegality of monopolies as written in the Sherman Act. This neglect has led modern antitrust officials to ignore the potential harms that network effects could create for competitors and, by extension, consumers. While Bork’s consumer welfare standard sought to preserve efficiencies and lower prices, it underestimated the structural harms monopolies impose. Network effects, entry deterrence, and degraded product quality — especially in concentrated industries — show that price alone is an inadequate proxy for competition or consumer well-being. For example, the airline industry — a market with as great of an emphasis on connection as communications — has significantly consolidated from about forty-seven firms in the 1970s to the modern day “big five” airlines of Delta, United, American, Alaska, and Southwest. Hoping to improve efficiency through increased economies of scale, antitrust authorities approved many of these mergers, and further permitted the remaining airlines to abuse their established network effects in pursuit of natural monopolies. This has led to the four largest airlines — Delta, United, American, and Southwest — to account for about two thirds of all domestic air travel in the United States.
Despite consumer welfare being the stated goal for the consolidation of the airlines industry, consumers now are much worse off than in the 70s. Though base ticket prices have declined, airlines have offset these savings with a proliferation of ancillary fees — for baggage, seat selection, and in-flight services — effectively raising the total cost of air travel for most consumers. Also, flights are not arriving on time, with almost 20% of all domestic flights facing delays. Not only did prices not decrease as a result of growing concentrations, but product quality also decreased, reminding us of the inherent dangers to societal wellbeing that monopolies and oligopolies are predisposed to imposing, as warned by the DOJ officials in the case against AT&T. By not having sufficient competition in the form of substitute airlines that consumers could move towards as a result of inadequate service, the market is unable to correct and discipline abusive behavior, contradicting Bork’s predictions.
In response to growing consumer concerns with the consolidating airline industry, the DOJ has started blocking airline mergers. In 2021, the DOJ filed a suit against the proposed merger between American Airlines and JetBlue, citing the same Sherman Antitrust Act as in the AT&T case. Similarly, the Department of Justice blocked the proposed merger between JetBlue and Spirit Airlines under the Clayton Antitrust Act, arguing that the elimination of Spirit as a low-cost carrier would substantially reduce competition on key routes. Moving away from the consumer welfare standard which has ignored the illegality of monopolies in favor of potentially reducing pricing, the DOJ has returned to the original acts which have formulated antitrust law. From these recent moves, the DOJ has demonstrated a reversal on its previous permissive attitudes, becoming more aggressive in regulation.
While preventing mergers like these are important for maintaining a competitive market, decades of neglected regulation have resulted in an overly consolidated airline industry. To address this market failure, the DOJ should break up the airlines. As with the AT&T case where the DOJ charged the company with “obstructing the interconnection” under the Sherman Act, airlines are just as important for interconnection. The DOJ should consider breaking the monopolization of hubs and routes, increasing competition and thus improving market conditions.
The current state of the airline industry reveals the flaws of relying solely on the consumer welfare standard as the guiding principle of antitrust enforcement. While this framework privileges lower prices, it overlooks deeper structural harms — including predatory pricing, degraded service quality, and diminished consumer choice — that arise when network-driven monopolies go unchallenged. The airline industry exemplifies these harms: increasingly consolidated, shielded by network advantages, and functionally insulated from competitive pressure.
Just as the DOJ intervened to break up AT&T not for bad intent, but for entrenched dominance that stifled future competition, so too must it confront the realities of today’s airline oligopoly. Courts and regulators should re-embrace the equal application of antitrust law to all monopolies — whether achieved through efficiency or exclusion. Returning to the Sherman Act’s original logic and abandoning the consumer welfare carve-outs would not only restore competitive conditions in air travel, but reassert the legal principle that concentrated power, even when efficient, threatens democratic markets.