Flying Blind : The Failure of Airline Deregulation

Today Kahn admits that, in advocating deregulation, he had misperceived the advantages of the large firms in the airline indus try.19 Now he says, "we underestimated the importance of economies of Transportation has simply scale and scope."20 Elsewhere, Kahn has conceded, "We advocates of turned out not to be the deregulation were misled by the apparent lack of evidence of econ ideal model of pe [...] Many defenders of deregulation dismiss lated duopoly in the the concerns of critics about the unprecedented levels of national concentration in the airline industry deregulation has permitted, on the average city-pair market. [...] Since the latter part of the period saw an increase of a scant one-tenth of a competitor, any "significant" increase would have to have come in the earlier period, prior to the consolidation of the industry after 1983. [...] Given 19 the doubts which have arisen on the score of the "contestability" of airline markets, to be discussed in the next section, and thus the dubious role of potential entry in disciplining the actions of incumbent carriers, it is difficult to take a great deal of solace in the "increased competition" in the average market for which deregulation is, by this measure, responsible. [...] Here we see that real yields (prices) fell in the ten year period prior to deregulation despite a doubling of the real cost of fuel, while the somewhat higher rate of decline post- deregulation oc curred in the context of a 25 percent decline in the real price of fueL During the period as a whole fuel constituted anywhere from 12 per cent of costs in the early 1960s to 30 percent after the secon