THE CONTESTABILITY OF AIRLINE MARKETS DURING THE TRANSITION TO DEREGULATION. IN: AIR TRANSPORT

Abstract

This paper investigates whether the theory holds true for city-pair airline markets that contestable markets, even if actually served by only one firm, exhibit many desirable properties of competitive markets. Despite substantial natural monopoly attributes, most airlines are likely to be readily contested. This fact ensures that even if actually operated by only a single firm, their performance should approach the competitive norm. This paper tests this theory using data emerging from the ongoing transition from regulated to unregulated equilibrium. Market structure and fare data from 1978-1980 is examined. Findings show that long haul airline markets served by local service monopolists have been priced competitively, confirming the proposed theory.