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Economic Regulation and Its ReformWhat Have We Learned?$
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Nancy L. Rose

Print publication date: 2014

Print ISBN-13: 9780226138022

Published to Chicago Scholarship Online: January 2015

DOI: 10.7208/chicago/9780226138169.001.0001

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How Airline Markets Work … or Do They?

How Airline Markets Work … or Do They?

Regulatory Reform in the Airline Industry

(p.63) 2 How Airline Markets Work … or Do They?
Economic Regulation and Its Reform

Nancy L. Rose

University of Chicago Press

This chapter provides a detailed synthesis of the consequences of regulation and its reform for the passenger airline industry. It reviews commercial passenger aviation during its first five decades, when government policy rather than market forces shaped its development and operation in almost all markets. Next, it chronicles the movement toward US deregulation in the mid-1970s, the first salvo in what would become a broad worldwide deregulation movement. It assesses the evidence on the myriad changes in price structures, network and market structure, competition, and service quality since the Airline Deregulation Act of 1978. While deregulation has been associated with consumer benefits, the transition path to a market-based equilibrium has been difficult, and not all stakeholders have gained. Finally, the chapter analyzes a set of ongoing policy concerns, some of which have been highlighted by those calling for renewed government regulation. These include questions about the sustainability of competition and volatility of airline profits; concern about the market power of dominant airlines; and the implications of investment shortfalls in airport and air traffic infrastructure for congestion. While the transition from regulation to competition has been long and unpredictable, the chapter finds little reason to second-guess airline deregulation.

Keywords:   airlines, deregulation, economic regulation, regulatory reform, public policy issues, competition, market power

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