Efficiency and Competition in the Airline Industry
Volume: Volume 14, No. 1
Issue: Spring 1983
Pages: pp. 118-138
Authors: David R. Graham, Daniel P. Kaplan and David S. Sibley
Title: Efficiency and Competition in the Airline Industry
Abstract: After reviewing some recent developments in the airline industry, this article tests two hypotheses that were central to the argument for deregulation: (1) that CAB regulation caused airlines to employ excess capacity relative to the capacity that would be provided under unregulated competition; and (2) that potential competition would keep fares at cost even in highly concentrated markets. An econometric analysis of these hypotheses based on postderegulation data suggests that the excess capacity hypothesis is essentially confirmed. In contrast, the pattern of fares in late 1980 and early 1981 does not support the potential competition hypothesis that fares are independent of market concentration.
JEL Classification
Market Structure: Industrial Organization and Corporate Strategy (6110)
Economics of Transportation (6150)