Northwest and Delta to merge

So in case you hadn't heard, Northwest and Delta are planning to merge to create the largest airline in the world. That's great news for people who care, among whom I am not. What this does for me is merge two useless frequent flyer programs that I never use into a single useless frequent flyer program that I never use. But that new program will have 50k miles or so sitting in it, so maybe I'll get around to using it sometime.

What would be a useful merger to me would be United and American. Then I can get to Europe, Asia, AND South America all on the same airline. THAT would be helpful. So UA, AA, get on it!!!

But I also hear some interesting analysis on Friday on NPR's Marketplace that suggested that the airline business could really only be profitable under monopolies. Which I would believe, given the massive scale of costs and logistics involved (a la US Postal Service and others). But of course that creates problems of price, since classical economic theory holds that perfect competition is the ideal way for prices to equilibrate at the point of incremental cost. Which is basically just the idea that competitors will each lower their prices to beat each other until their prices are basically matching their costs (assuming that costs include the minimum mark-up to remain profitable).

However, in a monopoly, the prices aren't necessarily that much higher than in perfect competition. They can be, but they don't *have* to be. There's a lot of economic theory involved, but the basics are that sometimes a monopoly is the best way to deliver a good or service. Again, think of USPS... do you really want to have multiple post offices to choose from, just to shave 3 cents off of your stamp cost? If there were competing post offices, prices would be driven down to the point that service would be cut off in rural and hard-to-reach areas, which would disenfranchise significant sections of the population. Generally, in questions of infrastructure, it's better to have a monopoly delivering the service (USPS, Amtrak, gov't providing roads/highways, etc), so that minimum service levels are maintained for everyone.

OK, so I didn't really proof or review what I just wrote, but I think in summary I've convinced myself that airlines are infrastructure and that we'd be better as a society to have air travel provided by monopolies, thus ensuring maximum service levels for all Americans, but at slightly higher prices. Hmmmm. Yeah, that sounds right to me.