This paper uses core theory as a theoretical framework in which to explore some of the possible implications of the ongoing liberalization in the European aviation market. While the shift towards more liberal regulatory structures has generally brought with it potential Pareto gains, the longer-term stability conditions necessary for a market equilibrium to emerge have not been thoroughly explored. The key policy conclusion of core theory is that, in the presence of an empty core, there are benefits for both suppliers and users in forming coalitions and in cooperative action. The difficulty for the policy-maker is in deciding when such actions are important for the establishment of a stable equilibrium, and when they serve as a device of suppliers to extract economic rents. The policy maker must also consider the types of collusive behavior permitted and how to regulate such collusion once allowed. There is inconclusive but not inconsequential evidence of the existence of an empty core regarding the European aviation market. If there is a possibility of an empty core emerging, then caution may be justified in liberalizing the market. However, the potential benefits of greater levels of efficiency would be lost with too much caution and excessive continued financial aid to publicly owned flag carriers. The potential gains from market liberalization should not be limited by institutional developments that do not adequately take into account the problems which could ensue from the existence of an empty core.

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  • Supplemental Notes:
    • This paper was originally published in Journal of Transport Economics and Policy, 30(3), September 1996, pp 275-291.
  • Corporate Authors:

    Edward Elgar Publishers

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


  • English

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  • Accession Number: 00961849
  • Record Type: Publication
  • ISBN: 1840645490
  • Files: TRIS
  • Created Date: Aug 21 2003 12:00AM