Im not sure airline history agrees with you. My cursory knowledge from prior posts on HN like this had mentioned regulation/deregulation played a huge part in shaping the ways that airlines competed. I've heard that airlines don't compete on price/feature as much anymore because they don't have to, and kickbacks from all the credit card offerings/deals. Anecdotally I've noticed this year major airlines pulling out of certain hubs (southwest) so there is even less competition, but prices still seemed to go down among the remaining options!

Im not sure how accurate this is, so willing to be shown differently!