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Airline Consolidation and Consumer Welfare

Author

Listed:
  • Elizabeth E. Bailey

    (Wharton School, University of Pennsylvania)

  • Dong Liu

    (International Finance Corporation, World Bank Group)

Abstract

In our model of the deregulated airline industry, consumers care not only about price but also about service convenience, measured by system coverage and connection. We find that the service-enhancing effects of employing large-scale hub-and-spoke networks have outweighed the price-increasing effects of having a smaller number of competing national airlines. Thus, a welfare gain has accrued to consumers as a result of the more consolidated market structure. We conclude that public policymakers should exercise antitrust and bankruptcy authority in a manner which does not impede welfare-enhancing consolidations in the airline industry.

Suggested Citation

  • Elizabeth E. Bailey & Dong Liu, 1995. "Airline Consolidation and Consumer Welfare," Eastern Economic Journal, Eastern Economic Association, vol. 21(4), pages 463-476, Fall.
    • Handle: RePEc:eej:eeconj:v:21:y:1995:i:4:p:463-476
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume21/V21N4P463_476.pdf
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    Citations

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    Cited by:

    1. Kai Hüschelrath & Kathrin Müller, 2014. "Airline Networks, Mergers, and Consumer Welfare," Journal of Transport Economics and Policy, University of Bath, vol. 48(3), pages 385-407, September.
    2. Vaze, Vikrant & Luo, Tian & Harder, Reed, 2017. "Impacts of airline mergers on passenger welfare," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 101(C), pages 130-154.
    3. Fan, Terence & Vigeant-Langlois, Laurence & Geissler, Christine & Bosler, Björn & Wilmking, Jan, 2001. "Evolution of global airline strategic alliance and consolidation in the twenty-first century," Journal of Air Transport Management, Elsevier, vol. 7(6), pages 349-360.
    4. Elizabeth E. Bailey, 2002. "Aviation Policy: Past and Present," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 12-20, July.

    More about this item

    Keywords

    Airline;

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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