The Department of Justice. and CAB-1978 to 1985
The Department of Transportation-1985 to 1988
During the first years after deregulation, and before 1985, antitrust jurisdiction was divided between the DOJ and the CAB. The DOJ prosecuted price-fixing violations of the Sherman Act and the CAB retained jurisdiction over mergers and acquisitions. When the sunset provisions of the ADA extinguished the authority of the CAB, jurisdiction over merger authority went to the Department of Transportation (in 1985). During this period, the DOJ function with respect to proposed mergers was limited to the submission of comments to the DOT. The DOJ agreed with many of the DOT positions on mergers and acquisitions. In 1986 alone, in fact, some 25 airlines were involved in 15 mergers.4
But the DOJ strongly opposed two mergers that the DOT approved, namely, the TWA acquisition of Ozark and the Northwest acquisition of Republic, both in 1986. The DOJ opposition was based on the fact that the merged carriers operated hubs at common airports, thus only they provided nonstop service to many city-pairs. With the mergers, all competition was lost.
The DOT approved the acquisitions rationalizing that the threat of entry into those markets by other carriers, who would be free to enter because of deregulation, would deter anticompetitive practices by the merged carriers. This thesis, known as the contestability theory, proved to be incorrect, and fare increases and service reductions followed the mergers.