Statement of the American Antitrust Institute on DOJ’s Closing of the Orbitz Investigation

Aug 04 2003

Date: August 1, 2003 Contact: Albert A. Foer, President, American Antitrust Institute, 202-276-6002

The Department of Justice on July 31 issued a statement regarding its reasons for closing its lengthy investigation of the Orbitz joint venture. (See http://www.usdoj.gov/atr/public/press_releases/2003/14163.htm.) The AAI had opposed this joint venture in presentations to the Department of Transportation and the Department of Justice. (See www.antitrustinstitute.org.)

It is unusual for the Department to issue detailed statements of this sort concerning the closing of an investigation. We believe that such examples of transparency in antitrust law enforcement (like the FTC’s statement when it closed its investigation of two cruise line mergers) are extremely important to the development of antitrust policy and to the public’s understanding and support of antitrust. We therefore compliment the Department for publishing this explanation.

The investigation itself may illustrate the sometimes-ignored “monitoring effect” of antitrust law enforcement. From the initial announcement of the formation of Orbitz, a joint venture of most of the airline industry in the U.S., there was a danger that the combination of a Most Favored Nation clause and incentives built into the joint venture would lead to a takeover of the rapidly growing electronic travel agency business by the airlines, eventually resulting in the substitution of a “captive” travel agency for the “independent navigator” service that is provided by traditional travel agents and electronic competitors such as Travelocity and Expedia. We believe that knowledge of D.O.J.’s investigation probably affected the implementation of Orbitz’ strategies and tactics, such that while it was able to quickly obtain a quarter of the market, its expansion stabilized and there are still strong rivals. It will be necessary to see whether Orbitz changes its behavior now that the investigation is closed, and, if so, whether its market share jumps upward.

AAI’s position has been that consumers may benefit from the additional competition brought to the travel reservation market by Orbitz, provided that Orbitz plays on a level playing field. If it had exclusive access to low electronic fares as a result of its ownership by the airlines, this would have violated the law. The D.O.J. investigation has concluded that this did not occur and that the market is now safe for competition. If the Department is correct, then consumers will benefit.