Monthly Archives: January 2005

CRITICAL PEAK PRICING ISN’T IDEAL, BUT IT’S A START

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Lynne Kiesling

The California PUC has directed the three investor-owned utilities in the state under its jurisdiction to develop critical peak pricing plans for summer 2005. From a Los Angeles Times article,

The California Public Utilities Commission directed the state’s three investor-owned utilities, including Edison International’s Southern California Edison Co., to install special meters and draw up “critical peak pricing” tariffs that would make electricity more expensive at times of heavy use. The higher rates could spur some commercial users to shut operations on the 15 or so days when the state might be faced with blackouts.

The pricing plan, along with beefed-up energy efficiency and conservation programs also approved by the commission Thursday, could be crucial in avoiding a crisis in Southern California this year. The recently released state Energy Action Plan predicted that the Southland could run short of power in August and September if temperatures are exceptionally high.

The new pricing plan is aimed at about 25,000 large users consuming 200 kilowatts of power at peak periods. Such large users range from office buildings and big retailers that use about 200 kilowatts to steel and cement plants that need more than 500 kilowatts when operating at full tilt, said Marcel Hawiger, an attorney with the Utility Reform Network, a San Francisco-based ratepayers advocate.

This San Diego Union-Tribune article has a better and more in-depth discussion of the move. But both articles do this move the disservice of spinning it as bad for customers, bad for large customers especially. I don’t think that is correct, particularly if the IOUs do a thoughtful job of revising their entire rate structure instead of just raising peak-hour rates.

The complaints of large customers also reflect static thinking. This pricing plan gives them an opportunity to use technology (i.e., thermal storage, voltage management) to reduce their peak use even if they can’t fully shift away from peak hours.

A LONG TAIL WITHOUT GOOD FILTERS IS JUST NOISE

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Michael Giberson

Ain’t it the truth? The local Hollywood Video appears reasonably well stocked. It isn’t Netflix deep, or anything, but when I go looking for something a little off the beaten track I am not always dissappointed. For example, they have Ken Loach’s Land and Freedom (1995), but not the Argentine confidence game movie Nueve Reinas (2000). So they’ve got some good stuff, but if I wander in without a list in hand I can easily be reduced to a dull stupor trying to find something to watch.

However, the source of my title is a post by Long Tail blogger Chris Anderson in which he argues the case against the new Apple iPod Shuffle. Anderson’s absolutely right, “a Long Tail without good filters is just noise.”

THOUGHTS ON AN SBC/AT&T MERGER

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Lynne Kiesling

When I saw the front-page article in the Wall Street Journal yesterday about merger talks between SBC and AT&T, my first thought was, well, we are far, far away from 1984! Who’d a thunk 20 years ago that this would happen?

SBC Communications Inc. is in talks to acquire AT &T Corp., a combination that could create the nation’s largest telephone company and join a flurry of industry deals as telecom companies try to build muscle to keep pace with new technologies and competitors.

The last part of that sentence is what caught my eye: “… keep pace with new technologies and competitors.” I felt Joseph Schumpeter hovering over my shoulder, and it made me feel all warm and cozy!

Apparently, and not surprisingly, it made Ray Gifford feel all warm and cozy too:

The interesting policy point here is how dramatically our definition of markets has changed. This once would have been a vertical merger for SBC into the long distance market, but that market is rapidly disappearing altogether. Instead, for antitrust purposes, it appears to be a simple horizontal merger in the enterprise market — and this is a market with multiple players and even more potential players as VoIP gains a foothold.

Another Wall Street Journal article from Thursday addresses that point, discussing how the definition of “market” affects the policy interpretation of the possible merger:

Whether regulatory approval for a merger between SBC Communications Inc. (SBC ) and AT &T Corp. (T) would be easy or difficult depends on what you consider “the market” to be, and whom you ask.

“If ‘the market’ is you, sitting in an SBC territory, and you say, ‘Boy, they’ve got your local access locked up and they’ve got the long-distance locked up,’” then regulatory approval might be difficult, said Gerald Adolph, a mergers and acquisitions expert at Booz Allen Hamilton.

But if the market is viewed as full of competition, with lots of choice for consumers because of the proliferation of services such as wired, wireless and the Internet, regulatory approval might not be difficult, Adolph said.

With all respect to Mr. Adolph, I think his concerns for locked SBC customers is misplaced, and that Ray’s got a better line on the true contestability in this now-horizontal transaction. From everything I’ve read, the core market here is now the enterprise market.

A CBS Marketwatch article also discusses the antitrust implications:

In the last five years, however, the phone industry underwent a big makeover. AT&T has lost millions of customers, and last year it stopped marketing long-distance service to consumers.

At the same time, the remaining local Bell phone companies — SBC, BellSouth, Verizon and Qwest Communications — have scooped up millions of former long-distance customers of AT&T. Hundreds of small, obscure providers also sell cheap long-distance service.

Over the next few years, meanwhile, cable companies plan to make a big push in the U.S. phone market, offering local and long distance to go along with their high-speed Internet services.

Still, the sale of AT&T would eliminate a major long-distance competitor in the 13 states served by SBC, including Texas and California.

Jessica Zufolo, a former lobbyist for the National Association of Regulatory Utility Commissioners, told clients Thursday that regulators in those 13 states would pose plenty of tough questions. …

The potential merger could land like a hot potato in the lap of whoever replaces the departing Michael Powell as chairman of FCC later this year. The new chairman will be under heavy political pressure to take a firm stand.

Big corporations, which have benefited from intense competition in the long-distance market, might also express concern. They see SBC as another potential competitor in that space.

I do think it’s interesting that so few of the articles I’ve read that discuss this possible transaction have mentioned the contestability value of VoIP.

That CBS Marketwatch article also said something that I think is realistic, but that I find deeply disturbing:

Analysts say Sen. Ted Stevens, R-Alaska, the new chairman of the Senate Commerce Committee, would probably launch hearings on any merger, most likely to wring out major concessions.

“I think the price could be very large,” said analyst Paul Wright of the Loomis Sayles mutual funds firm.

Where do politicians get off behaving like mafiosi? Am I incredibly naive to aks that question? I think it’s pathetic.

THOUGHTS ON AN SBC/AT&T MERGER

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Lynne Kiesling

When I saw the front-page article in the Wall Street Journal yesterday about merger talks between SBC and AT&T, my first thought was, well, we are far, far away from 1984! Who’d a thunk 20 years ago that this would happen?

SBC Communications Inc. is in talks to acquire AT &T Corp., a combination that could create the nation’s largest telephone company and join a flurry of industry deals as telecom companies try to build muscle to keep pace with new technologies and competitors.

The last part of that sentence is what caught my eye: “… keep pace with new technologies and competitors.” I felt Joseph Schumpeter hovering over my shoulder, and it made me feel all warm and cozy!

Apparently, and not surprisingly, it made Ray Gifford feel all warm and cozy too:

The interesting policy point here is how dramatically our definition of markets has changed. This once would have been a vertical merger for SBC into the long distance market, but that market is rapidly disappearing altogether. Instead, for antitrust purposes, it appears to be a simple horizontal merger in the enterprise market — and this is a market with multiple players and even more potential players as VoIP gains a foothold.

Another Wall Street Journal article from Thursday addresses that point, discussing how the definition of “market” affects the policy interpretation of the possible merger:

Whether regulatory approval for a merger between SBC Communications Inc. (SBC ) and AT &T Corp. (T) would be easy or difficult depends on what you consider “the market” to be, and whom you ask.

“If ‘the market’ is you, sitting in an SBC territory, and you say, ‘Boy, they’ve got your local access locked up and they’ve got the long-distance locked up,’” then regulatory approval might be difficult, said Gerald Adolph, a mergers and acquisitions expert at Booz Allen Hamilton.

But if the market is viewed as full of competition, with lots of choice for consumers because of the proliferation of services such as wired, wireless and the Internet, regulatory approval might not be difficult, Adolph said.

With all respect to Mr. Adolph, I think his concerns for locked SBC customers is misplaced, and that Ray’s got a better line on the true contestability in this now-horizontal transaction. From everything I’ve read, the core market here is now the enterprise market.

A CBS Marketwatch article also discusses the antitrust implications:

In the last five years, however, the phone industry underwent a big makeover. AT&T has lost millions of customers, and last year it stopped marketing long-distance service to consumers.

At the same time, the remaining local Bell phone companies — SBC, BellSouth, Verizon and Qwest Communications — have scooped up millions of former long-distance customers of AT&T. Hundreds of small, obscure providers also sell cheap long-distance service.

Over the next few years, meanwhile, cable companies plan to make a big push in the U.S. phone market, offering local and long distance to go along with their high-speed Internet services.

Still, the sale of AT&T would eliminate a major long-distance competitor in the 13 states served by SBC, including Texas and California.

Jessica Zufolo, a former lobbyist for the National Association of Regulatory Utility Commissioners, told clients Thursday that regulators in those 13 states would pose plenty of tough questions. …

The potential merger could land like a hot potato in the lap of whoever replaces the departing Michael Powell as chairman of FCC later this year. The new chairman will be under heavy political pressure to take a firm stand.

Big corporations, which have benefited from intense competition in the long-distance market, might also express concern. They see SBC as another potential competitor in that space.

I do think it’s interesting that so few of the articles I’ve read that discuss this possible transaction have mentioned the contestability value of VoIP.

That CBS Marketwatch article also said something that I think is realistic, but that I find deeply disturbing:

Analysts say Sen. Ted Stevens, R-Alaska, the new chairman of the Senate Commerce Committee, would probably launch hearings on any merger, most likely to wring out major concessions.

“I think the price could be very large,” said analyst Paul Wright of the Loomis Sayles mutual funds firm.

Where do politicians get off behaving like mafiosi? Am I incredibly naive to aks that question? I think it’s pathetic.

THOUGHTS ON AN SBC/AT&T MERGER

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Lynne Kiesling

When I saw the front-page article in the Wall Street Journal yesterday about merger talks between SBC and AT&T, my first thought was, well, we are far, far away from 1984! Who’d a thunk 20 years ago that this would happen?

SBC Communications Inc. is in talks to acquire AT &T Corp., a combination that could create the nation’s largest telephone company and join a flurry of industry deals as telecom companies try to build muscle to keep pace with new technologies and competitors.

The last part of that sentence is what caught my eye: “… keep pace with new technologies and competitors.” I felt Joseph Schumpeter hovering over my shoulder, and it made me feel all warm and cozy!

Apparently, and not surprisingly, it made Ray Gifford feel all warm and cozy too:

The interesting policy point here is how dramatically our definition of markets has changed. This once would have been a vertical merger for SBC into the long distance market, but that market is rapidly disappearing altogether. Instead, for antitrust purposes, it appears to be a simple horizontal merger in the enterprise market — and this is a market with multiple players and even more potential players as VoIP gains a foothold.

Another Wall Street Journal article from Thursday addresses that point, discussing how the definition of “market” affects the policy interpretation of the possible merger:

Whether regulatory approval for a merger between SBC Communications Inc. (SBC ) and AT &T Corp. (T) would be easy or difficult depends on what you consider “the market” to be, and whom you ask.

“If ‘the market’ is you, sitting in an SBC territory, and you say, ‘Boy, they’ve got your local access locked up and they’ve got the long-distance locked up,’” then regulatory approval might be difficult, said Gerald Adolph, a mergers and acquisitions expert at Booz Allen Hamilton.

But if the market is viewed as full of competition, with lots of choice for consumers because of the proliferation of services such as wired, wireless and the Internet, regulatory approval might not be difficult, Adolph said.

With all respect to Mr. Adolph, I think his concerns for locked SBC customers is misplaced, and that Ray’s got a better line on the true contestability in this now-horizontal transaction. From everything I’ve read, the core market here is now the enterprise market.

A CBS Marketwatch article also discusses the antitrust implications:

In the last five years, however, the phone industry underwent a big makeover. AT&T has lost millions of customers, and last year it stopped marketing long-distance service to consumers.

At the same time, the remaining local Bell phone companies — SBC, BellSouth, Verizon and Qwest Communications — have scooped up millions of former long-distance customers of AT&T. Hundreds of small, obscure providers also sell cheap long-distance service.

Over the next few years, meanwhile, cable companies plan to make a big push in the U.S. phone market, offering local and long distance to go along with their high-speed Internet services.

Still, the sale of AT&T would eliminate a major long-distance competitor in the 13 states served by SBC, including Texas and California.

Jessica Zufolo, a former lobbyist for the National Association of Regulatory Utility Commissioners, told clients Thursday that regulators in those 13 states would pose plenty of tough questions. …

The potential merger could land like a hot potato in the lap of whoever replaces the departing Michael Powell as chairman of FCC later this year. The new chairman will be under heavy political pressure to take a firm stand.

Big corporations, which have benefited from intense competition in the long-distance market, might also express concern. They see SBC as another potential competitor in that space.

I do think it’s interesting that so few of the articles I’ve read that discuss this possible transaction have mentioned the contestability value of VoIP.

That CBS Marketwatch article also said something that I think is realistic, but that I find deeply disturbing:

Analysts say Sen. Ted Stevens, R-Alaska, the new chairman of the Senate Commerce Committee, would probably launch hearings on any merger, most likely to wring out major concessions.

“I think the price could be very large,” said analyst Paul Wright of the Loomis Sayles mutual funds firm.

Where do politicians get off behaving like mafiosi? Am I incredibly naive to aks that question? I think it’s pathetic.

THOUGHTS ON AN SBC/AT&T MERGER

Posted on by

Lynne Kiesling

When I saw the front-page article in the Wall Street Journal yesterday about merger talks between SBC and AT&T, my first thought was, well, we are far, far away from 1984! Who’d a thunk 20 years ago that this would happen?

SBC Communications Inc. is in talks to acquire AT &T Corp., a combination that could create the nation’s largest telephone company and join a flurry of industry deals as telecom companies try to build muscle to keep pace with new technologies and competitors.

The last part of that sentence is what caught my eye: “… keep pace with new technologies and competitors.” I felt Joseph Schumpeter hovering over my shoulder, and it made me feel all warm and cozy!

Apparently, and not surprisingly, it made Ray Gifford feel all warm and cozy too:

The interesting policy point here is how dramatically our definition of markets has changed. This once would have been a vertical merger for SBC into the long distance market, but that market is rapidly disappearing altogether. Instead, for antitrust purposes, it appears to be a simple horizontal merger in the enterprise market — and this is a market with multiple players and even more potential players as VoIP gains a foothold.

Another Wall Street Journal article from Thursday addresses that point, discussing how the definition of “market” affects the policy interpretation of the possible merger:

Whether regulatory approval for a merger between SBC Communications Inc. (SBC ) and AT &T Corp. (T) would be easy or difficult depends on what you consider “the market” to be, and whom you ask.

“If ‘the market’ is you, sitting in an SBC territory, and you say, ‘Boy, they’ve got your local access locked up and they’ve got the long-distance locked up,’” then regulatory approval might be difficult, said Gerald Adolph, a mergers and acquisitions expert at Booz Allen Hamilton.

But if the market is viewed as full of competition, with lots of choice for consumers because of the proliferation of services such as wired, wireless and the Internet, regulatory approval might not be difficult, Adolph said.

With all respect to Mr. Adolph, I think his concerns for locked SBC customers is misplaced, and that Ray’s got a better line on the true contestability in this now-horizontal transaction. From everything I’ve read, the core market here is now the enterprise market.

A CBS Marketwatch article also discusses the antitrust implications:

In the last five years, however, the phone industry underwent a big makeover. AT&T has lost millions of customers, and last year it stopped marketing long-distance service to consumers.

At the same time, the remaining local Bell phone companies — SBC, BellSouth, Verizon and Qwest Communications — have scooped up millions of former long-distance customers of AT&T. Hundreds of small, obscure providers also sell cheap long-distance service.

Over the next few years, meanwhile, cable companies plan to make a big push in the U.S. phone market, offering local and long distance to go along with their high-speed Internet services.

Still, the sale of AT&T would eliminate a major long-distance competitor in the 13 states served by SBC, including Texas and California.

Jessica Zufolo, a former lobbyist for the National Association of Regulatory Utility Commissioners, told clients Thursday that regulators in those 13 states would pose plenty of tough questions. …

The potential merger could land like a hot potato in the lap of whoever replaces the departing Michael Powell as chairman of FCC later this year. The new chairman will be under heavy political pressure to take a firm stand.

Big corporations, which have benefited from intense competition in the long-distance market, might also express concern. They see SBC as another potential competitor in that space.

I do think it’s interesting that so few of the articles I’ve read that discuss this possible transaction have mentioned the contestability value of VoIP.

That CBS Marketwatch article also said something that I think is realistic, but that I find deeply disturbing:

Analysts say Sen. Ted Stevens, R-Alaska, the new chairman of the Senate Commerce Committee, would probably launch hearings on any merger, most likely to wring out major concessions.

“I think the price could be very large,” said analyst Paul Wright of the Loomis Sayles mutual funds firm.

Where do politicians get off behaving like mafiosi? Am I incredibly naive to aks that question? I think it’s pathetic.

ECONOMIST SKILLS AND MAP READING SKILLS: CORRELATED?

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Lynne Kiesling

I woke up this morning to an email from Tim Worstall, who asked me the following question: how’s your map reading?

Stumbling and Mumbling inspires his question by linking to research showing that women have poorer map-reading skills than men, and then asking

Is it the case that women economists are better at map-reading than women generally?

Caveats: Tim is right that within-group variance is likely to be higher than across-group variance here. Also, I am simply a datum in this analysis, and one datum does not a case make.

Here’s my answer: I have above-average map-reading skills, and above-averge spatial skills in general; in fact, if I recall from the last time I did anything formal about it I am at least a standard deviation above the mean. So that correlation between economist skills and map-reading skills is consistent with S&M’s hypothesis.

As a corollary hypothesis, I wonder if map-reading is more correlated with economist skills than with directional skills. I have a freakishly good sense of direction; in fact, one of my nicknames is “migratory water fowl” because I can find my way around a place having only visited it once. I have a girlfriend who is an excellent economist but has below-average directional skills, yet she is a good map reader.

I also have a sister-in-law who has superlative math skills and is extremely intelligent, but lacks map-reading skills.

So here’s my alternate hypothesis: map-reading skills are correlated with spatial and visual skills. Economists are more likely to posses these skills because of our use of both visual and mathematical tools. But it’s the visual/spatial, not the mathematical, part of the skill set that is the source of the correlation.

WHAT IS THE MACARTHUR FOUNDATION DOING?

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Michael Giberson

Speaking of Daniel Drezner, he has a post up about the MacArthur Foundation Fellows program. Drezner discusses a story in Crain’s Chicago Business by Marc Sheffler that examines the relative lack of success of grants to writers in leading to new significant works. Tyler Cowen also comments.

Assuming it is true that, as Sheffler’s story says, the MF grants don’t really foster the production of new great literary works, what are we to make of the Foundation’s claim that the “program works fantastically”?

In several respects, the grants have worked fantastically. First, the program works as PR for the Foundation, which gets associated with genius and artistic merit. My guess is that the Foundation’s reputation is more associated with the existing work of the recipients at the time of the initial grant, and not so affected by the future work done during or after the term of the fellowship.

After all, the Foundation doesn’t assert any creative control over the recipients, so if a Fellow’s next book is lousy it isn’t the Foundation’s fault. If MacArthur did exercise explicit post-award control over the Fellows, then the Foundation’s reputation would be more closely associated with the (risky, unknown) quality of the Fellow’s new work.

On the other hand, if the Foundation chose someone who had only produced mediocre work, then clearly the Foundation’s reputation would suffer. They maximize their reputation by choosing folks with existing well-regarded books, not by gambling on the value of future works.

Second, the programs do work culturally by signaling what the Foundation finds to be of value. Clearly, capitalism directly rewards many of the creative contributors to society, but by spending large sums to reward writers and artists (among others), the Foundation is saying to society, “These creative contributions, too, are valued.”

Now, it isn’t clear the society undervalues novelists in general. The supply of fiction these days clearly exceeds the demand, ask any publisher about their inbox, and many people labor away at their keyboards and dream. But in the cultural sphere, willingness to put this kind of money into the hand of artists serves as a signal of value. And, whether you agree or disagree as to whether the foundation needs to encourage this sort of behavior, I’m inclined to think “Their money, their choice.”

Third, by giving fellowships both to relatively well-known authors and to relatively unknown scientists and social entrepreneurs, the program transfers some of the “superstar” status associated with successful artists to the more pedestrian world of science. It is a way of saying, “Hey, these folks are doing cool stuff, too.” MacArthur takes a bundle of cash made in insurance and property investments, and turns it into some solid high-culture street cred.

So long as you judge the Fellows program as a PR effort to enhance the reputation of MacArthur and, perhaps, as a vote in favor of Culture-with-a-capital-C in a culture that more readily funds others kinds of enterprise, then the program seems a success.

For more blog commentary, try this Technorati search.

Moorishgirl writes, “Must be nice to work for somebody who doesn’t do performance reviews.”

Actually, I find I usually do better work when faced with the prospect of eventual adult supervision, but for $500 thousand from the MacArthur folks, I’d be willing to risk sputtering to a halt.

WHAT IS THE MACARTHUR FOUNDATION DOING?

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Michael Giberson

Speaking of Daniel Drezner, he has a post up about the MacArthur Foundation Fellows program. Drezner discusses a story in Crain’s Chicago Business by Marc Sheffler that examines the relative lack of success of grants to writers in leading to new significant works. Tyler Cowen also comments.

Assuming it is true that, as Sheffler’s story says, the MF grants don’t really foster the production of new great literary works, what are we to make of the Foundation’s claim that the “program works fantastically”?

In several respects, the grants have worked fantastically. First, the program works as PR for the Foundation, which gets associated with genius and artistic merit. My guess is that the Foundation’s reputation is more associated with the existing work of the recipients at the time of the initial grant, and not so affected by the future work done during or after the term of the fellowship.

After all, the Foundation doesn’t assert any creative control over the recipients, so if a Fellow’s next book is lousy it isn’t the Foundation’s fault. If MacArthur did exercise explicit post-award control over the Fellows, then the Foundation’s reputation would be more closely associated with the (risky, unknown) quality of the Fellow’s new work.

On the other hand, if the Foundation chose someone who had only produced mediocre work, then clearly the Foundation’s reputation would suffer. They maximize their reputation by choosing folks with existing well-regarded books, not by gambling on the value of future works.

Second, the programs do work culturally by signaling what the Foundation finds to be of value. Clearly, capitalism directly rewards many of the creative contributors to society, but by spending large sums to reward writers and artists (among others), the Foundation is saying to society, “These creative contributions, too, are valued.”

Now, it isn’t clear the society undervalues novelists in general. The supply of fiction these days clearly exceeds the demand, ask any publisher about their inbox, and many people labor away at their keyboards and dream. But in the cultural sphere, willingness to put this kind of money into the hand of artists serves as a signal of value. And, whether you agree or disagree as to whether the foundation needs to encourage this sort of behavior, I’m inclined to think “Their money, their choice.”

Third, by giving fellowships both to relatively well-known authors and to relatively unknown scientists and social entrepreneurs, the program transfers some of the “superstar” status associated with successful artists to the more pedestrian world of science. It is a way of saying, “Hey, these folks are doing cool stuff, too.” MacArthur takes a bundle of cash made in insurance and property investments, and turns it into some solid high-culture street cred.

So long as you judge the Fellows program as a PR effort to enhance the reputation of MacArthur and, perhaps, as a vote in favor of Culture-with-a-capital-C in a culture that more readily funds others kinds of enterprise, then the program seems a success.

For more blog commentary, try this Technorati search.

Moorishgirl writes, “Must be nice to work for somebody who doesn’t do performance reviews.”

Actually, I find I usually do better work when faced with the prospect of eventual adult supervision, but for $500 thousand from the MacArthur folks, I’d be willing to risk sputtering to a halt.

DANIEL DREZNER’S POST ON AIRLINE DEREGULATION

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Lynne Kiesling

Daniel Drezner has an great post from yesterday on airline deregulation. In commenting on the NY Times article that he references, Dan notes that

… the major airlines are facing a serious financial squeeze, to be sure — but the 2001 post-9/11 government bailout worsened rather than aided their situation.

I encourage you to read it, as well as the Matt Welch article in Reason on the effects of start-up (and upstart) discount airlines in Europe.

Tommy at Almost Average, who is himself a commercial airline pilot, made a profound and important observation in the comments to Dan’s post:

The biggest problem right now with airline competition is it isn’t really competition until you are willing to let somebody lose.

Precisely! That’s why I’m so cheesed off about USAirways getting federal hand-holding. Cut ‘em loose, man. There’s all sorts of other value propositions out there for those assets, in the hands of entrepreneurs who are likely to make a better go of it than USAirways in the current setup.

Tommy’s point pertains not just to airlines, but to all infrastructure and network industries. We (and by we I mean politicians thinking that they’re channeling our desires, but who are really directed by the “clamorous importunity of partial interests”) have a very strong unwillingness to tolerate the risk of service dislocation if a firm in an infrastructure network exits the industry.

That fear is not necessarily well-founded. Just because a firm exits an industry doesn’t mean that its assets will exit the industry (although in the case of USAirways, it’s probably true that losing some of their excess capacity would create more long-run stability in the network).

In a later comment on Dan’s post, Don Fishback makes a related point:

If the government would let just one of the legacy carriers fail, it would wake up the capital markets and the employees of the other carriers that capitalism allows for competition and that businesses have to adapt to that competition. Supply would stop growing, demand would catch up to supply, and the airlines would return to health.

But that’s not going to happen. That’s because the airline business is a deregulated business where the government intervention prevents the weak from ever failing!