Airline vs. Grocery Concentration: Why the Same HHI Means Different Things

US airline industry concentration produces visible consumer harm — bag fees, change fees, route monopolies. Grocery concentration looks similar on HHI metrics and produces less obvious harm. Lina Khan's FTC tenure and Tim Wu's *The Curse of Bigness* frame why standard antitrust metrics miss the difference.

The Herfindahl-Hirschman Index (HHI) is the standard measure of market concentration in antitrust analysis. A market with one firm has an HHI of 10,000; a market with many small firms approaches zero. The DOJ-FTC merger guidelines use HHI thresholds: above 2,500 is "highly concentrated", and merger-driven increases of 200+ in highly concentrated markets warrant close scrutiny. The same HHI can mean very different things in different markets, and treating the number as self-interpreting is a recurring error in concentration debates.

The Airline Industry's HHI

US domestic passenger air travel has an HHI around 1,500-1,800 depending on how routes are defined, which is below the "highly concentrated" threshold at the national level. At specific hub-and-spoke origin-destination pairs, the HHI is often above 5,000 — some origin cities have a single dominant carrier providing more than 70% of the available service.

The post-2008 consolidation — Delta-Northwest 2008, United-Continental 2010, Southwest-AirTran 2010, American-US Airways 2013 — concentrated the industry from nine major carriers to four. Each merger was approved on the theory that the increased operational efficiency would offset the loss of competitive pricing pressure. The empirical record since shows that fare reductions have been smaller than the pre-merger projections, and that carriers in concentrated routes charge systematically higher fares for comparable service.

The 2024 blocked JetBlue-Spirit merger represents a shift in DOJ thinking. The remaining low-cost carriers — Spirit, Frontier, Allegiant, JetBlue — are the residual competitive pressure on the legacy carriers. Allowing them to be absorbed would have removed the last source of discount pricing on many routes.

The Grocery Industry's HHI

US grocery retail looks competitive at the national level. The combined top four grocers — Walmart, Kroger, Albertsons, and Ahold Delhaize — account for roughly 30% of US grocery sales, which yields a national HHI around 1,000. By the DOJ's standard, this would be a "moderately concentrated" market not requiring close scrutiny.

At the local level the picture is different. Grocery is a local market — consumers buy from stores within driving distance of their homes. In many metropolitan areas, two or three chains account for more than 70% of grocery sales. In rural areas, a single chain often dominates. The Kroger-Albertsons proposed merger, blocked by the FTC in 2024, would have created markets with HHIs above 5,000 in dozens of metro areas, even as the national HHI would have remained moderate.

Why the Same HHI Differs

Several factors mean the same HHI implies different competitive intensity depending on the market.

First, the relevant geographic market. Airlines compete on national networks; grocery competes locally. National HHI is the wrong denominator for grocery; local HHI is the wrong denominator for airlines on hub-and-spoke pairs. Treating the published national numbers as authoritative misses where the actual competitive harm occurs.

Second, switching costs. Airline passengers can typically choose among multiple carriers for a given trip — the switching cost is nonzero (frequent-flyer programs, airport familiarity) but is small. Grocery shoppers face larger switching costs — driving distance, brand familiarity, layout knowledge, loyalty programs. A grocery chain with 50% local share has more pricing power than an airline with 50% national share, because the grocery customers are stickier.

Third, entry barriers. Airline entry requires substantial capital (aircraft, gate access at concentrated hubs, route certifications) but new entrants regularly emerge (Breeze, Avelo, Frontier). Grocery entry at scale requires real estate, distribution networks, and supplier relationships that take years to build. New national-scale grocery chains have not emerged in decades.

Fourth, the nature of the differentiation. Airline tickets are relatively undifferentiated. Grocery offerings are highly differentiated — store brands, organic selection, ethnic specialty, deli quality, store experience. The differentiation gives sellers some pricing power independent of concentration. A high-HHI market with limited differentiation behaves very differently from a high-HHI market with substantial differentiation.

What the FTC and DOJ Now Look At

The 2023 revised DOJ-FTC merger guidelines moved beyond the simple HHI threshold framework toward a more contextual analysis. The guidelines now emphasize:

Local market definitions for retail and service industries.
Effects on suppliers (monopsony) and workers, not just consumers.
Coordinated effects (tacit collusion) in addition to unilateral effects.
Innovation effects — whether the merger reduces incentives for product or service innovation.
Effects on entry — whether the merger forecloses potential competitors.

This shift moves enforcement away from the "consumer welfare" frame that dominated under the Chicago School influence and toward the broader competition analysis that pre-1980 antitrust practiced. The Khan FTC and Kanter DOJ Antitrust both helped drive this change; the 2024 Kroger-Albertsons block and Spirit-JetBlue block are the clearest applications.

The Coordinated-Effects Problem

In an oligopoly with three or four firms, explicit collusion is illegal but tacit coordination is hard to prevent. The firms can observe each other's prices, capacity decisions, and strategic moves, and can respond in ways that produce supra-competitive prices without explicit agreement. Airline fare patterns post-consolidation show exactly this — across-the-board fare increases, baggage fee introductions, and capacity discipline that look like collusion but are formally independent decisions.

The empirical evidence on coordinated effects is hard to pin down because the firms do not document their tacit understanding. But the pattern of parallel pricing in concentrated oligopolies is too consistent to be coincidence. The merger-review framework has been slowly incorporating this insight, but enforcement remains harder than for explicit cartels.

The Honest Reading

HHI is a useful but blunt tool. The same number can imply very different competitive intensity depending on the market. The concentration debates of the last decade have moved toward more nuanced analysis — local markets, supplier effects, coordinated effects, dynamic effects on entry — that better captures actual competitive harm. The blocked Kroger-Albertsons and Spirit-JetBlue mergers signal that this nuanced approach has institutional traction under the current enforcement leadership. Whether it survives a political shift back toward the Chicago School framing is uncertain. The intellectual case for moving beyond the simple HHI thresholds has won; the institutional case is still being made.