COMPETITION AND EFFICIENCY IN REGULATORY AIRLINE CITY-PAIR MARKETS (STUDIES IN THE ECONOMICS OF FEDERAL TRANSPORTATION POLICIES, NUMBER 8)
Factors which influence the cost of providing air service are important in determining the optimal industrial organization. While most attention has been placed on the minimum optimal firm size, this thesis examines a second source of economic inefficiencies. It is argued here that competition in city-pair markets leads to suboptimal schedules. The tendency of airlines--and firms in many other industries--to schedule head-to-head suggests that the quality of a schedule of flights, for a given quantity of output, should decline as the number of competitors increases. In order to test this theoretical result, a model of schedule delay is developed, drawing upon the theory of consumer surplus. A series of structural equations is then estimated, supporting the above conclusions by finding a positive correlation between delay and the number of carriers--for a given number of flights. On the basis of these results, it is argued that airline city-pair markets should be regulated as monopolies. Monopolists, perceiving the socially-optimal market demand curve, will offer a more efficient schedule. The CAB must, however, regulate the schedule quality in order to prevent the monopolist from limiting the quantity to the profit-maximizing level. This can probably be accomplished by setting schedule standards and enforcing them with the threat of competition. /Author/
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Corporate Authors:
Massachusetts Institute of Technology
Center for Transportation Studies, Room 1121
Cambridge, MA United States 02139 -
Authors:
- NASON, S D
- Publication Date: 1977-9
Media Info
- Pagination: 88 p.
Subject/Index Terms
- TRT Terms: Air transportation; Airlines; City pairs; Competition; Economic efficiency; Marketing; Markets; Monopoly; Regulations; Scheduling; Traffic delays
- Uncontrolled Terms: Efficiency
- Old TRIS Terms: City pair market
- Subject Areas: Aviation; Economics; Law;
Filing Info
- Accession Number: 00176721
- Record Type: Publication
- Source Agency: Massachusetts Institute of Technology
- Report/Paper Numbers: CTS 77-16
- Files: TRIS
- Created Date: Jun 28 1978 12:00AM