Regulation in the Air: Price and Frequency Cap

Despite deregulation on the air-transportation markets, many connections are still operated by a single operator. Regulation is thus a central issue in this industry. There is however a great concern for the (possibly negative) consequences of price regulation on the quality of services. We argue that both aspects should be considered jointly and propose a mechanism that allow to decentralize the optimal structure of services in this industry. The regulatory procedure is robust to the introduction of heterogeneity in the travellers' valuation of the connections' frequency.