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Chapter 35: Competition and Regulation in Air Transport
Anming Zhang, Yimin Zhang and Joseph A. Clougherty INTRODUCTION The world airline industry has received a great deal of attention from scholars in a number of different disciplines: economics, management, political science and so on. The sustained interest in this industry is due in part to its fundamental importance as a contributor to exchange, development and economic growth. Furthermore, the airline industry was at the forefront of public policy reforms with respect to liberalization of regulatory policies: namely, the bellwether deregulation of US domestic markets in 1978 (Derthick and Quirk, 1985). Until 1978, the US airline industry was regulated by the Civil Aeronautics Board (CAB). Through the experiences of unregulated intrastate airlines in California and Texas – which offered lower fares than comparable regulated services between states – and a few chartered international airlines, the deregulation of market entry commenced in 1978 with the passage of the ‘Airline Deregulation Act’ (Levine, 1987). Fare pricing was fully liberalized in 1982, and the CAB itself was abolished in 1984. Following US deregulation there has been a worldwide move away from government regulation towards liberalization of air services and ‘open skies’. The unleashing of airline competition has led to a number of strategic actions being taken by airlines in a liberalized competitive environment, including mergers and consolidation, competition over frequency and scheduling, hub-and-spoke network formation, and international alliance agreements. In this chapter, we provide a review of the research that aims to understand the rationales – and welfare implications – behind these various strategic actions that were...
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