Evidence on market structure of the deregulated US airline industry

Abstract

Airline deregulation in the USA was a rejection of inefficient regulation and inspired by the perspective of both potential and actual competition in the industry. Using multivariate regression and efficiency frontier techniques, the emergent structure of unregulated airline markets is assessed. Our findings, based on panel data for major US airlines during the period 1984-1991, indicate that (1) as a result of successful efforts by airlines to reduce the scope for competition, aviation technology now exhibits increasing rather than constant returns to network size as predicted by cost studies prior to deregulation; (2) deregulation failed to produce evidence of efficiency convergence among carriers as would be expected under sufficiently competitive conditions.