Last month, nearly all domestic airline companies in China raise their price simultaneously. However, they denied that their decision based upon agreement between them. On 04.27.2009, SAIC promulgated the Draft Regulation on Prohibition of Monopoly Agreements and the Draft Regulation on Prohibition of Abuse of Dominance. The two drafted regulations offer detailed instruction and important amendments on how to regulate monopoly agreements and abuse of dominance.
Almost at the same time, in western countries where anti-monopoly practice is mature, investigations into the alleged price fixing in the cargo and passenger fare rates have recently been launched.
On 04.09.2009, three international airline companies agreed to plead guilty to price fixing on air cargo shipments which resulted in criminal fines to U.S. Department of Justice. On 04.20.2009, the European Commission opened formal proceedings against certain members of Star and Oneworld airline alliances for the alleged price fixing behaviors. On 04.30.2009, the Australian Competition & Consumer Commission instituted proceedings against Cathay Pacific Airways Ltd for alleged price-fixing of air freight.
Theoretically speaking, there are two approaches in analyzing the price fixing, per se rule approach and a rule of reason approach. The adoption of a per se rule for price fixing was based on the view that the effects of price fixing are so invariably injurious that no inquiry into them is required—merely engaging in the proscribed conduct by agreeing to fix prices is a sufficient basis for liability. This rule is widely used at the early stage of the development history of anti-monopoly law practice. However, people began to realize that under some circumstances, price fixing has its own economic rationale and should not be treated arbitrarily. As the result, more and more countries tend to employ a rule of reason approach in analyzing price fixing. When the positive results outweigh the negative ones, the price fixing amongst the parties will be granted.
In practice, price fixing can be broadly divided into three criterions: 1. cases involving explicit cartel agreements; 2. cases in which price-fixing behavior is inferred from agreements or other behavior not directly concerned with prices; 3. cases involving some aspect of price and no anticompetition result can be found. In general, the per se rule approach is appropriate for the first class while the other two may be concerned under a rule of reason approach.
The aviation industry belongs to the traditional anti-monopoly law exemption category due to its nature: huge investments and limited market needs. Thus excessive competition is impractical as well as inefficient. The nature warrants the market as highly concentrated. Agreements concerning price amongst airline companies have been exempted from anti-monopoly review. However, the recent practice indicates that airline companies and their price fixing agreements have become the target of anti-monopoly law enforcement institutions. This stricter attitude may result from two reasons. First, because of the concentration of the market, any agreements concerning fares and or fare rates will substantially eliminate the potential for fair price competition and further decrease the choices available to consumers, harming their welfare. Additionally, agreements concerning fare and fare rates may decrease the quantity of competitors within the market, resulting in the elimination of effective competition