HAT Manifesto Part 1/3 - Rubric Cube - 240804 revision

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5^th Ed.

PART 5 Firm Behavior and the Organization of Industry

Chapter 17 of 36 Oligopoly

Section 17 of 24

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In his book The Wealth of Nations, Adam Smith wrote:

"People of the same trade seldom meet together but the conversation ends in a conspiracy against the public or in some diversion to raise prices."

The New York Times reported in 1983 the following is an excerpt of a phone conversation between

· Robert Crandall, president of American Airlines

· Howard Putnam, president of Braniff Airways

CRANDALL: I think it's dumb as hell to sit here and pound each other and neither one of us making a dime.

PUTNAM: Do you have a suggestion?

CRANDALL: Yes. Raise your fares 20 percent, I'll raise mine the next morning. You'll make more money, and I will, too.

PUTNAM: We can't talk about pricing!

CRANDALL: Howard. We can talk about anything we want to talk about.

Putnam was right, the Sherman Antitrust Act prohibits competing business executives from talking about fixing prices.

Putnam gave a tape of this conversation to the Justice Department, and it filed suit against Crandall.

Two years later Crandall and the Justice Department reached a settlement.

Crandall agreed to various restrictions on his business activities including contacts with executives at other airlines.

The Justice Department stated the terms of settlement would protect competition in the airline industry by preventing American and Crandall from any further attempts to monopolize passenger airline service through discussions with competitors about the prices of airline services.