The Economic Effects of Airline Deregulation

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Brookings Institution Press, Dec 1, 2010 - Business & Economics - 84 pages
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In 1938 the U.S. Government took under its wing an infant airline industry. Government agencies assumed responsibility not only for airline safety but for setting fares and determining how individual markets would be served. Forty years later, the Airline Deregulation Act of 1978 set in motion the economic deregulation of the industry and opened it to market competition. This study by Steven Morrison and Clifford Winston analyzes the effects of deregulation on both travelers and the airline industry. The authors find that lower fares and better service have netted travelers some $6 billion in annual benefits, while airline earnings have increased by $2.5 billion a year. Morrison and Winston expect still greater benefits once the industry has had time to adjust its capital structure to the unregulated marketplace, and they recommend specific public polices to ensure healthy competition.
 

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Contents

Introduction
1
Regulatory Policy and Carrier Operations
4
HubandSpoke Operations
5
The Efficiency and Distributional Effects of Deregulation
11
Travelers
13
Carriers
36
Administrative Costs and Subsidies
41
Summary and Qualifications
51
Maximization of Travelers Welfare
54
Results
57
Competition and Public Policy in Deregulated Airline Markets
60
Public Policy Considerations
66
Deregulation and the Evolution of the Airline Industry
72
Intercity Demand Model
74
Detailed Welfare Calculations
75
Index
5

Deregulation and the Social Optimum
53

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