The regulation and deregulation of US airlines

Journal of Transport History

Volumn 20, Issue 1, 1999, Pages 46-64

  Sinha, Dipendra ^a  

^a MACQUARIE UNIVERSITY   (Australia)

Author keywords

[No Author keywords available]

Indexed keywords

AIR TRANSPORTATION; DEREGULATION; HISTORICAL GEOGRAPHY; TRANSPORTATION ECONOMICS;

UNITED STATES;

EID: 0032788592     PISSN: 00225266     EISSN: None     Source Type: Journal    
DOI: 10.7227/TJTH.20.1.4     Document Type: Article

References (76)

1. Institutional economists dominated the field of regulation in the 1930s and 1940s. For a detailed discussion of the institutional approach to regulation see H. Trebing, 'Regulation of industry: an institutional approach', Journal of Economic Issues, 21 (1987), pp. 1707-37.
2. See M. H. Bernstein, Regulating Business by Independent Commission (Princeton NJ, 1955). For good reviews of the theories of regulation see R. A. Posner, 'Theories of economic regulation', Bell Journal of Economics and Management Science, 5 (1974), pp. 335-58, and B. M. Mitnick, The Political Economy of Regulation (New York, 1980).
3. See M. H. Bernstein, Regulating Business by Independent Commission (Princeton NJ, 1955). For good reviews of the theories of regulation see R. A. Posner, 'Theories of economic regulation', Bell Journal of Economics and Management Science, 5 (1974), pp. 335-58, and B. M. Mitnick, The Political Economy of Regulation (New York, 1980).
4. See M. H. Bernstein, Regulating Business by Independent Commission (Princeton NJ, 1955). For good reviews of the theories of regulation see R. A. Posner, 'Theories of economic regulation', Bell Journal of Economics and Management Science, 5 (1974), pp. 335-58, and B. M. Mitnick, The Political Economy of Regulation (New York, 1980).
5. G. J. Stigler, 'The theory of economic regulation', Bell Journal of Economics and Management Science, 2 (1971), pp. 3-21.
6. B. Yandle and E. Young, 'Regulating the function, not the industry', Public Choice, 51 (1986), pp. 59-70.
7. N. K. Taneja, The Commercial Airline Industry (Lexington MA, 1976), p. 1.
8. R. H. K. Vietor, 'Contrived competition: airline regulation and deregulation, 1925-88', Business History Review, 64 (1990), p. 6.
9. D. D. Lee, 'Herbert Hoover and the development of commercial aviation', Business History Review, 58 (1984), p. 92.
10. Taneja, Commercial Airline Industry, p. 58.
11. Ibid., p. 1.
12. R. E. Caves, Air Transport and its Regulators (Cambridge MA, 1962), p. 1.
13. R. M. Kane and A. D. Vose, Air Transportation, sixth edition (Dubuque IA, 1977), p. 51.
14. Caves, Air Transport, p. 123.
15. Report of the Federal Aviation Commission, Seventy-fourth Congress, First Session, Senate Document No. 15 (1935), p. 61.
16. Ibid., p. 63.
17. S. B. Richmond, Regulation and Competition in Air Transportation (New York, 1961), p. 16.
18. Section 102, 72 Stat. 740, 49 U.S.C.A. 1303.
19. Under the grandfather clause, existing operators are routinely given certificates to operate after the passage of an Act unless there are strong reasons for not granting such a certificate.
20. Section 403 (a)-(c), 72 Stat. 758, 49 U.S.C.A. 1303; Section 404 (a)-(b), 72 Stat. 760, 49 U.S.C.A. 1374.
21. Report of the Federal Aviation Commission, p. 52.
22. S. Berge, 'Competition to the extent necessary', Journal of Air Law and Commerce, 22 (1955), pp. 127-30.
23. Unfair or destructive competition used to be a very important part of economists' language during the first half of the twentieth century. For example, Berge observes: 'It is clear from this that our public policy favors competition with the exception of unfair or destructive competitive practices. Congress left it to the Board to determine the extent of competition necessary to assure the sound development of air transportation.' See S. Berge, 'Subsidies and competition as factors in air transport policy', Journal of Air Law and Commerce, 18 (1951), p. 7.
24. Caves, Air Transport, p. 178.
25. Civil Aeronautics Board, Docket 2068, American Airlines Inc. Acquisition of Mid-continental Airlines, 19 April 1946.
26. Airport Survey, Seventy-sixth Congress, First Session, House Document No. 87 (1945).
27. Airline Industry Investigation, Hearings pursuant to Senate resolution before the Committee on Interstate and Foreign Commerce, First and Second Sessions, House Document Nos 46 and 95, pp. 671 and 742.
28. Berge, 'Subsidies and competition', pp. 8-9.
29. L. S. Keyes, 'Passenger fare policies of the Civil Aeronautics Board', Journal of Air Law and Commerce, 18 (1951), p. 27.
30. F. W. Gill and G. L. Bates, Airline Competition (Boston MA, 1949), p. 419.
31. For a thorough discussion of the board's entry policies see H. K. Maclay and W. C. Burt, 'Entry of new carriers into domestic trunkline air transportation', Journal of Air Law and Commerce, 22 (1955), pp. 131-56. For an even earlier critique, see J. B. Crane, 'The economics of air transportation', Harvard Business Review, 22 (1944), pp. 495-509.
32. For a thorough discussion of the board's entry policies see H. K. Maclay and W. C. Burt, 'Entry of new carriers into domestic trunkline air transportation', Journal of Air Law and Commerce, 22 (1955), pp. 131-56. For an even earlier critique, see J. B. Crane, 'The economics of air transportation', Harvard Business Review, 22 (1944), pp. 495-509.
33. US Congress Public Law 85-726.
34. Caves, Air Transport, p. 70.
35. Taneja, Commercial Airline Industry, p. 15.
36. Civil Aeronautics Board, Domestic Passenger Fare Investigation, January 1970 to December 1974, 1976.
37. E. E. Bailey, D. R. Graham and D. P. Kaplan, Deregulating the Airlines (Cambridge MA, 1985), p. 20.
38. G. W. Douglas and J. C. Miller III, Economic Regulation of Domestic Air Transport: Theory and Policy (Washington DC, 1974).
39. W. A. Jordan, Airline Regulation in America: Effects and Imperfections (Baltimore MD, 1970).
40. A. E. Kahn, The Economics of Regulation (New York, 1971).
41. T. E. Keeler, 'Airline regulation and market performance', Bell Journal of Economics and Management, 3 (1972), pp. 399-414.
42. M. Levine, 'Is regulation necessary? California air transportation and national regulatory policy', Yale Law Journal, 74 (1965), pp. 1416-47.
43. See, for example, G. Eads, M. Nerlove and W. Raduchel, 'A long-run cost function for the local service airline industry: an experiment in non-linear estimation', Review of Economics and Statistics, 51 (1969), pp. 258-70; M. R. Straszheim, The International Airline Industry (Washington DC, 1969), chapter 5; L. J. White, 'Economies of scale and the question of "natural monopoly" in the airline industry', Journal of Air Law and Commerce, 46 (1979), pp. 545-73.
44. See, for example, G. Eads, M. Nerlove and W. Raduchel, 'A long-run cost function for the local service airline industry: an experiment in non-linear estimation', Review of Economics and Statistics, 51 (1969), pp. 258-70; M. R. Straszheim, The International Airline Industry (Washington DC, 1969), chapter 5; L. J. White, 'Economies of scale and the question of "natural monopoly" in the airline industry', Journal of Air Law and Commerce, 46 (1979), pp. 545-73.
45. See, for example, G. Eads, M. Nerlove and W. Raduchel, 'A long-run cost function for the local service airline industry: an experiment in non-linear estimation', Review of Economics and Statistics, 51 (1969), pp. 258-70; M. R. Straszheim, The International Airline Industry (Washington DC, 1969), chapter 5; L. J. White, 'Economies of scale and the question of "natural monopoly" in the airline industry', Journal of Air Law and Commerce, 46 (1979), pp. 545-73.
46. See D. W. Caves, L. R. Christensen and M. W. Tretheway, 'Economies of density versus economies of scale: why trunk and local service airline costs differ', Rand Journal of Economics, 15 (1984), pp. 471-89.
47. See D. R. Graham and D. P. Kaplan, 'Airlines deregulation is working', Regulation, 6 (1982), pp. 26-32.
48. Civil Aeronautics Board, Domestic Route System: Analysis and Policy Recommendations, October 1974.
49. Bailey et al., Deregulating the Airlines, p. 33.
50. See A. P. Dobson, 'Regulation or competition? Negotiating the Anglo-American Air Service Agreement of 1977', Journal of Transport History, 15 (1994), pp. 144-64.
51. R. K. Vietor, Contrived Competition (Cambridge MA, 1994), p. 53.
52. J. R. Meyer, C. V. Oster, I P. Morgan, A. B. Benjamin and D. L. Strassman, Airline Deregulation: the Early Experience (Boston MA, 1981), p. 51.
53. For the complete wording of the Airline Deregulation Act of 1978 and a description of the circumstances leading to the passage of the Act see J. R. Miller, The Airline Deregulation Handbook (Wheaton IL, 1981).
54. S. Borenstein, 'The evolution of US airline regulation', Journal of Economic Perspectives, 6 (1992), pp. 45-74.
55. For a contrary view see P. S. Dempsey, Flying Blind: the Failure of Airline Deregulation (Washington DC, 1990). Also see P. S. Dempsey, 'Airline deregulation and laissez-faire mythology: economic theory in turbulence', Journal of Air Law and Commerce, 56 (1990), pp. 305-412, and J. P. Rakowski, 'Marketing myopia meets marketing economies: unexpected results of US airline and trucking deregulation', Transportation Quarterly, 44 (1990), pp. 499-521.
56. For a contrary view see P. S. Dempsey, Flying Blind: the Failure of Airline Deregulation (Washington DC, 1990). Also see P. S. Dempsey, 'Airline deregulation and laissez-faire mythology: economic theory in turbulence', Journal of Air Law and Commerce, 56 (1990), pp. 305-412, and J. P. Rakowski, 'Marketing myopia meets marketing economies: unexpected results of US airline and trucking deregulation', Transportation Quarterly, 44 (1990), pp. 499-521.
57. For a contrary view see P. S. Dempsey, Flying Blind: the Failure of Airline Deregulation (Washington DC, 1990). Also see P. S. Dempsey, 'Airline deregulation and laissez-faire mythology: economic theory in turbulence', Journal of Air Law and Commerce, 56 (1990), pp. 305-412, and J. P. Rakowski, 'Marketing myopia meets marketing economies: unexpected results of US airline and trucking deregulation', Transportation Quarterly, 44 (1990), pp. 499-521.
58. See A. E. Kahn, 'Change, challenge and competition: a review of the Airline Commission report', Regulation, 16 (1993), pp. 55-63.
59. See M. A. Brenner, J. O. Leet and E. Schott, Airline Deregulation (Westport CT, 1985).
60. S. A. Morrison and C. Winston, The Economic Effects of Airline Deregulation (Washington DC, 1986).
61. For a thorough discussion of the pricing strategies during the post-deregulation era see Bailey et al., Deregulating the Airlines.
62. W. J. Baumol, J. C. Panzar and R. D. Willing, Contestable Markets and the Theory of Industrial Structure (New York, 1982).
63. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
64. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
65. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
66. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
67. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
68. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
69. Among the important studies of the contestability of airline markets are E. E. Bailey and J. C. Panzar, 'The contestability of airline markets during the transition to deregulation', Law and Contemporary Problems, 44 (1981), pp. 125-46; D. R. Graham, D. P. Kaplan and D. S. Sibley, 'Efficiency and competition in the airline industry', Bell Journal of Economics, 14 (1983), pp. 118-38; Bailey et al., Deregulating the Airlines; T. G. Moore, 'US airline deregulation: its effects on passengers, capital, and labor', Journal of Law and Economics, 29 (1986), pp. 1-28; S. A. Morrison and C. Winston, 'Empirical implications and tests of the contestability hypothesis', Journal of Law and Economics, 30 (1987), pp. 53-66; S. Borenstein, 'Hubs and high fares: airport dominance and market power in the US airline industry', Rand Journal of Economics, 20 (1989), pp. 344-65; S. A. Morrison and C. Winston, 'The dynamics of airline pricing and competition', American Economic Review, 80 (1990), pp. 389-93.
70. Vietor, Contrived Competition, p. 84.
71. See Borenstein, 'The Evolution of US Airline Competition', p. 47.
72. For a good discussion of market power and entry into the industry see A. N. Kleit, 'Competition without apology: market power and entry in the deregulated airline industry', Regulation, 14 (1991), pp. 68-75.
73. A good review of the airline safety debate is found in N. L. Rose, 'Fear of flying: analyses of airline safety', Journal of Economic Perspectives, 6 (1992), pp. 75-94.
74. C. V. Oster, Jr, and C. K. Zorn, 'Airline deregulation: is it safe to fly?' in L. Moses and I. Savage (eds), Transportation Safety in an Age of Deregulation (Oxford, 1989).
75. Jordan, Airline Regulation, pp. 5-7.
76. S. G. Breyer and L. R. Stein, 'Airline deregulation: the Anatomy of Reform', in R. J. Poole (ed.), Instead of Regulation (Lexington MA, 1982), pp. 8-9.