Application of Core Theory to the Airline Industry

Competition in the airline industry has been fierce since the industry was deregulated in 1978. The proponents of deregulation believed that more competition would improve efficiency and reduce prices and bring overall benefits to the consumer. In this paper, a case is made based on core theory that under certain demand and cost conditions more competition can actually lead to harmful consequences for industries like the airline industry or cause an empty core problem. Practices like monopolies, cartels, price discrimination, which is considered inefficient allocation of resources in many other industries, can actually be beneficial in the case of the airline industry in bringing about an efficient equilibrium.