Sunday, October 7, 2007
Posted by D. Daniel Sokol
I have had to fly to conferences each of the last two weeks, so airlines are on my mind. Particularly because of delays out of Chicago O'Hare both times (trips were to Toronto and Chicago respectively), I began to wonder about how airline deregulation has worked out. To answer this question, I found a recent paper by Severin Borenstein of Berkeley's Haas School of Business and Nancy L. Rose of MIT's Economics Department titled How Airlines Market Work...Or Do They? Regulatory Reform in the Airline Industry.
ABSTRACT: Following a brief review of the U.S. domestic airline industry under regulation (1938-1978), we study the changes that have occurred in pricing, service, and competition in the 28 years since deregulation. We then examine some of the major public policy issues facing the industry: (a) the sustainability of competition and volatility of airline profits, (b) possible market power of dominant airlines, and (c) congestion and investment shortfall in the airport and air traffic infrastructure.