- The Washington Times - Monday, November 24, 2003

The recent announcement that the economy grew at a 20-year record pace in the third quarter is good news. The challenge now is to sustain that growth. Less rather than more economic regulation is one answer.

The Bush administration claims it supports a less regulated and more market-based economy. But that commitment to deregulation and competitive markets is now being tested by a major rule-making proceeding at the Department of Transportation regarding the scheduled expiration of the 20-year-old regulation of computer reservation systems (CRSs).

CRSs provide travel agents (and thus travelers) with airline flight and fare data. This service enables travel agents to find up-to-date schedules, convenient itineraries and low-priced tickets and to take advantage of competition among airlines that resulted from deregulation.

Despite robust competition among CRSs and the availability of alternative Internet travel sites to travel agents and passengers, CRSs remain highly regulated. Current regulations dictate many terms of the contracts between CRSs and travel agents, require CRSs to deal with all airlines on identical terms and regulate the display of flight information. The proposed regulations would add even further restrictions.

When DOT regulated CRSs in 1984, and when it last updated the regulations in the early 1990s, major airlines owned all the CRSs. The principal reason for regulation was DOT’s fears that the airline owners would use their control of CRSs to skew competition and mislead consumers by steering travel agents to their more expensive and less convenient flights.

However, these conditions no longer exist. The three largest CRSs are now independent of airline ownership, so any threat that airlines would use their control of CRSs to mislead travel agents and skew competition has disappeared. Moreover, the marketplace has been transformed by the rise of Internet distribution. Airline web sites and online agencies provide consumers and agents with easy ways to find and book the best itinerary.

The department acknowledges these changed market conditions yet ignores their meaning. The bargaining power and distribution systems of airlines, the rivalry among CRSs for travel agent business, and competition among travel agents ensure a competitive marketplace. Continued regulation not only isn’t needed to protect consumers, but in fact will harm them by impeding market-driven innovations.

The department’s six-year review of its current CRS regulations — that were scheduled to sunset in 1997 — is a textbook example of regulatory failure. The DOT proposals have changed but mainly for the worse. They would add needless regulations that fail to keep pace with technological innovations and business changes. For example, DOT proposes to increase its controls on screen displays, seen by knowledgeable travel agents, but demonstrates that this is unwarranted by refusing to regulate on displays seen by (less sophisticated) Internet consumers using online agencies.

Still, there are some grounds for hope. The Antitrust Division in the Department of Justice has publicly called for DOT to let most of the CRS rules expire as scheduled on Jan. 31, 2004, because unregulated competition best serves the public interest. The Federal Trade Commission severely criticized DOT’s efforts to justify its proposal through misplaced reliance on outdated FTC decisions. In addition, the Office of Management and Budget forced the department to include the alternative of full-scale deregulation for public comment.

Of broader significance, the administration’s ability to end regulation of CRSs will provide a clear indication of whether it can deliver on its deregulatory agenda and keep the U.S. economy moving forward. By acting decisively to end these outmoded regulations, the administration can demonstrate its commitment to the free market and thereby improve the environment for continued job creation and economic expansion.

William F. Adkinson Jr. is senior policy counsel for the Progress and Freedom Foundation.


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