Air deregulation revisited: Choice of aircraft,load factors,and marginal-cost fares for domestic air travel |
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Institution: | 1. Hubert-Curien laboratory, UMR CNRS 5516, Jean-Monnet University of Lyon, France;2. INRIA/IRISA, University of Rennes-1, Lannion France;3. EmicroE Laboratory LR99ES30, University of Monastir, Tunisia;4. Le2i laboratory UMR CNRS 6306, University of Bourgogne, Dijon, France |
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Abstract: | If airline deregulation is working as predicted, then fares should fall to marginal costs. This paper computes such optimal fares, allowing for a wide variation in point-to-point distance, traffic, and available aircraft type. It is shown that marginal-cost fares are exceeded by average carrier costs. This implies an unpleasant dilemma: either the industry is naturally destructive (if the returns are internal to firms) or else the sustainable industry configuration is less than welfare-optimal. In the latter case, the possibility of a Pareto-improvement with a judicious form of re-regulation cannot be ruled out. In light of this, a certain amount of caution about the results of deregulation is suggested. |
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