Doomsday Policy and Dirty Ticket Pricing

What can dubious pricing strategies of airlines in the 1990s teach us about the dynamics of the U.S. government? The Airline Tariff Publishing Company (ATPCO) allowed airlines to post their prices online long before the airlines actually had to commit to offering those prices to consumers. This was supposed to allow freedom of information on ticket prices, and let airlines act with integrity as their future actions were out in the open. In this particular situation however, the devil was in the details, the footnotes to be more precise. On the information sheet for any given ticket price, there were numerous codes listed along with information like how long the price prediction would be valid for. These codes became the basis for a DOJ investigation into the airlines. 

The airline industry was undergoing a difficult time of transition and record profit losses. The DOJ alleged that their losses had spurred them to collude in prices. DOJ researchers observed that airlines would change their prices sequentially, and it seemed as though they used their codes to communicate which flights of their competitors they wanted changed. For example, if there was one airline based in Salt Lake City that had a flight to Dallas which was being undercut by a different airline pricing lower than them, they would use a code similar to the code of the flight that had angered them to explain why they were undercutting a different flight of the other airline. In the next period, after looking at the codes of the opponent’s flight and seeing why they were being undercut, they could increase their own prices and benefit the first airline while also saving themselves from being undercut on the other flight. However, in an era where code reading had to be manual, these companies would often not get the message the first time. They would repeatedly change prices in increasingly desperate efforts to get the attention and compliance of their competition before the flights were actually publicly available to purchase. While these airlines were not able to directly or communicate, a combination of their pre-purchase actions and secret signalling let them find the situation most advantageous for both of them before the moment when prices went live. 

The Republican and Democratic party have a remarkably similar method by which their policy emphases are set. We can model prices and quantity of tickets sold as partisanship of beliefs and number of votes actually received. Just as an airline might like to raise their prices to thousands of dollars per ticket in an ideal world, a political party would love to pick and choose their ideal policy agenda. The problem in both of these situations is that they would decrease their share of tickets sold and votes gained respectively. At the same time, neither party can drop all of their beliefs to maximize their vote share, as this would minimize their “ideological profit” even as they gained more voters, similar to how neither airline would profit from selling thousands of 10$ tickets. Maximizing profit (policy progress) and avoiding getting “out centrist-ed” by the opposition incentivize both parties to shift their stances in reaction to public signaling of the other party. When one party promotes an unusually appealing or centrist idea, such as cutting all taxation on cash tips, the other party must respond by either mimicking their new idea or undercutting their appeal in some other area. However, just as two airlines desire to make profits, the voter base and ideological foundations of both parties put a limit to the undercutting, meaning that they must only choose to pander where it will have the highest impact in relation to the opponent. This incentive system means that parties must analyze the statements of other parties’ leading figures to determine where they won’t bend, and where they will be willing to collude by both holding onto their polarizing policies. 

After the party who successfully determines the right ratio of ideological rigor and universally popular claims has been elected into office, the game now extends into new territory, where each party can choose how cooperative they will be. The game is played for an indeterminate amount of rounds, and the further into the future both parties think the game will be played, the higher the benefits to cooperation. However, as the expected end of the game, or in this situation the expiration date of the United States draws ever nearer, the benefit of getting one-party policy goals enacted becomes higher, because there are fewer periods in the future the opponent will have to react. Neither party knows how many rounds are left, but if any period was thought to be the last round of the game, the party in power would act extremely and seize all power, as has happened in many dissolving countries. In contrast to this, if America were expected to exist into infinity, cooperation would have far higher payoffs as a small amount of policy progress infinite times is far preferable to a large, one-time jump in “profit.”