The Economic Effect of Competition in the Air Transportation Industry

The air transportation industry has been described as a highly-competitive, regulated oligopoly or as a price-regulated cartel with blocked entry, resulting in excessive service and low load factors. The current structure of the industry has been strongly influenced by the hypotheses that increased levels of competition are desirable per se, and that more competing carriers can be economically supported in larger markets, in longer haul markets, with lower unit costs, and with higher fare levels. An elementary application of competition/game theory casts doubt on the validity of these hypotheses, but rather emphasizes the critical importance of the short-term non-variable costs in determining economic levels of competition.