COMMITMENT, SUNK COSTS, AND ENTRY TO THE AIRLINE INDUSTRY: REFLECTIONS ON EXPERIENCE. IN: AIR TRANSPORT

This paper uses the case of a newly formed airline, London Express Aviation Ltd. (LEX), and its entry to the United Kingdom charter market to consider three problems: the definition of committed or sunk costs, the specification of empirical work on the relation between revealed profits and industry structure, and some important aspects of a regulator's task in intervention. The costs identified as committed were essentially concerned with assembling the operation and commissioning the start-up, and most of these were for personal services. The entry of LEX into the London-Singapore route involved sunk costs of 400,000-500,000 pounds, which was only about 1.6 percent of the total cost outlays to be incurred in the same year. Although monetary outlays in the form of recognizable committed costs were negligible, the problems of which these costs were symptoms (such as the risk of large capital investments) were not. British airline regulation is considered more liberal than most of Europe, and was willing to let LEX's application for entry to be tested by LEX's ability to persuade tour operators to agree to forward contracts to fill the plane. However, one aspect of the entry procedure, allowing challenges by other airlines to an intending entrant, required the entrant to release information publicly that could allow incumbents to formulate precise responses to the entry threat.

  • Availability:
  • Supplemental Notes:
    • This paper originally published in Journal of Transport Economics and Policy, 20(2), May 1986, pp 173-190.
  • Corporate Authors:

    Edward Elgar Publishers

    William Pratt House, 9 Dewey Court
    Northampton, MA  United States  01060-3815
  • Authors:
    • Beesley, M E
  • Publication Date: 2002

Language

  • English

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Filing Info

  • Accession Number: 00961847
  • Record Type: Publication
  • ISBN: 1840645490
  • Files: TRIS
  • Created Date: Aug 21 2003 12:00AM