The Illusion Of Choice

One of the weirder aspects about getting older – and to be clear, I’m not that old – is stepping back and reflecting on how my political views have changed. It’s fair to say that I was indifferent to politics for a long time and as a byproduct of working in technology, tended to typically side with innovation over incumbents. I believed (and still do, really) in technology as the biggest agent for change.

Which is all a prelude to say that I find it very odd that recently I’ve been feeling myself swinging the other way. The first is about AirBnB, which I’ll have to post about it some other time, and the second is about Uber, which I’ve been pretty notably bearish on for awhile.

But now this whole mess with United Airlines and the involuntary removal of the passenger turned my focus a bit to airlines, and while it’s not surprising I find myself condemning what United did and their tone-deaf response, I’m finding it very difficult to separate their actions from the economic realities of the industry, which is turn causing me to almost give them a pass. Ugh. It’s a horrible feeling.

Look at it this way: airlines are, in my opinion, the biggest industry of colluding agents in the world. When you consider how many cities are basically locked up by certain airlines (Delta/ATL, America/DFW) and how the merge-down of the industry has basically eliminated any competition, marketplace economics simply don’t have any impact. What little competition that does exist on the routes is tempered by collusion; after all, why would the airplanes fight against each other when they control the frequency and thus can guarantee nearly full planes at mutually agreed and non-competitive prices? The cost of the airlines actually competing each other is too expensive, and the gains to be had are too little to justify the cost of the expenditure. It is profit-optimal for them to simply do nothing and collude; competing is literally the only conceivable way any of them could go bankrupt.

Extending this argument out further, you can basically point to the de-regulation of the industry in the 1970s as the root cause of this. I think generally you’d be hard-pressed to say that the experience of flying is notably better since then – certainly not to the degree that nearly 40 years of innovation should conceivably bear – and now you’re left with this oligarchic setup where prices are arbitrarily high and airlines like United recognize that they can act terribly because there really isn’t a ton of consumer choice.

And I get it, believe me – I can already hear the libertarian free-market arguments here that there are other options to flying, the market will vote with their wallets, and that generally speaking corporations owe no loyalty to anyone other than their shareholders and employees. Taking that argument implies such a simplistic, short-term view of the situation, that policy remains static over time and that there are no potential future repercussions for corporate irresponsbility now. United only acts the way they do because there are no short-term impacts, a function of the stacked industry they lobbied to create. Apologize? Why? It’s a blip on their radar, and apologizing only makes them a target for lawsuits. Not to mention the fact that the barrier to entry in the airline industry is absurdly high; it takes billions of dollars and landing slots that don’t exist!

(Of course, explaining this behavior is different than excusing it; it’s reprehensible but wholly understandable and predictable given the environment they’re operating in. That’s why its such a horrible feeling, because you just know that what they’re doing is completely expected, and that they’re crunched the numbers and concluded that acting terribly is more economically correct than acting responsibly. As an aside, this is also the reason why your ISP, mobile provider, health insurance, and a host of other large, faceless corporations are universally hated.)

To stop this, consumers either need to vastly expand their price elasticity – which I’m doubtful of, considering that Spirit exists and is thriving – or the government needs to intervene to establish more sensible regulation. Which is, to package up my entire post into a shiny bow, the exact same thing that I think the government should do in regards to both AirBnB and Uber, and also the exact same thing I would have been miles and miles away from considering as a solution even a few years ago. Isn’t it amazing what a few gray hairs will do?


No responses yet

Leave a Reply