The myth of deregulation's consumer benefits

Airline merger

A US Airways plane is parked between two American Airlines planes at Dallas-Fort Worth International Airport. The two airlines merged last month. (Tom Fox / McClatchy-Tribune)

The question is whether all these mergers will finally provide the last carriers standing with more latitude to jack up prices. A decade ago, travelers could choose from 10 major airlines. Now they have fewer than half that number.

"The benefits of deregulation are short- to intermediate-term generally for any industry," said James Shaw, a professor of business economics at the University of San Francisco.

"A burst of competition and innovation occurs in the short run, and prices fall," he said. "Consolidation of market players then produces price stability through resultant diminished competition."

And after that?

"Higher market share, via reduced number of market participants, then promotes higher prices," Shaw said.

That's the scenario that's played out time and time again.

Philip Romero, a professor of finance at the University of Oregon and onetime chief economist for former California Gov. Pete Wilson, said officials shouldn't be shy about taking the regulatory shackles off businesses.

"Price deregulation is almost always a good idea," he said, "as long as you have a decent number of market players to ensure competition."

There's the rub. Over the long haul, the benefits of deregulation increasingly belong to companies.

"They respond to deregulation by buying each other up and restoring the same lack of competition that existed before deregulation," Romero said.

"The answer for government," he said, "is to deregulate but to be much more aggressive on the antitrust side of things."

In other words, unleash all those wonderful market forces that can come with allowing businesses to run with the ball, but draw the line when, as always seems to happen, businesses run instead into one another's arms.

Unless your idea of a healthy market is to have just two major phone companies, or two major cable companies, or two major airlines. Or fewer.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.

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