Market power is evidence both by higher prices wherever it exists and miserable service. Since they do not face effective competition, they do not feel compelled to improve quality. Flowing from this basic observation, we find support for a number of traditional observations about public policy. Actual competition is vastly more important than the threat of competition. Barriers to entry play a critical role in determining the level and nature of competition.
Mergers tend to reduce competition, increase prices and lower output.
The geographic extension that United is seeking and the denser network that the merger would create make it less and less likely that competitors will be able to attack these markets. As all such airline networks do, it would lock travelers in by concentrating their flow through fortress hubs, coordinating scheduling at those hubs, and binding them with frequent flier and other promotional programs. As travelers fall more and more under the control of one airline, the ability of new entrants to crack markets is reduced, as it become harder and harder to attract passengers to flight segments. The necessary scale of entry gets larger and larger. Part of the complexity of the analysis stems from the fact that the characteristics of hubs that appear to confer market power are both positive and negative.