In the spring of 1992, the airline industry was in dismal shape, debilitated by the recently ended recession and an overreliance on discounting. So American Airlines announced a new “value pricing” plan, which entailed cutting fares while replacing complex discounts with a simple, four-tier price system. It assumed that its competitors would follow suit, stabilizing prices in the industry. Instead, T.W.A. and USAir announced even bigger fare cuts, which American matched and, in some cases, surpassed. The other major carriers had no choice but to go along, and the industry found itself in the middle of a full-fledged price war. In a matter of months, the airlines collectively lost four billion dollars.

That was, as one business professor put it,...