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Costs under Regulation and Deregulation: The Case of US Passenger Airlines

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  • JOHN P. FORMBY
  • PAUL D. THISTLE
  • JAMES P. KEELER

Abstract

Privatization, the removal of regulatory control and similar changes in property rights within firms can be expected to shift cost functions downward and permit increased output, lower final service prices and more efficient resource allocation The US Airline Deregulation Act of 1978 was clearly expected to have these effects. This paper investigates whether the widely anticipated reduction in costs following the Airline Deregulation Act of 1978 actually occurred. We utilize an empirical procedure that explicitly takes the multi‐product characteristics into account and identifies the various sources of changes in costs. The change in airline's costs are decomposed into components and separately measured to identify the effects attributable to deregulation A number of other countries are now considering important changes in the public ownership and control of their airline industries and a quantitative assessment of the actual effect of US deregulation on costs may be thought of as providing lower bound estimates of what might be expected in other countries.

Suggested Citation

  • John P. Formby & Paul D. Thistle & James P. Keeler, 1990. "Costs under Regulation and Deregulation: The Case of US Passenger Airlines," The Economic Record, The Economic Society of Australia, vol. 66(4), pages 308-321, December.
    • Handle: RePEc:bla:ecorec:v:66:y:1990:i:4:p:308-321
    DOI: 10.1111/j.1475-4932.1990.tb01736.x
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    References listed on IDEAS

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    1. Johnston, Ahren & Ozment, John, 2013. "Economies of scale in the US airline industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 95-108.

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