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Price cap deregulation and competitive entry: Evidence from China’s airline markets

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  • Wan, Wei
  • Pang, Dongliang
  • Xiang, Jingjie

Abstract

Price caps are widely adopted to restrain the abuse of market power, but their impact on firm entry is underexplored. This paper investigates the effect of price cap removal on competitive entry based on the practice of China’s airfare cap deregulation. Evidence suggests that the elimination of price caps significantly increases the number of airlines at the flight route level, as it leads to a larger number of new entrants. We further summarize the patterns of airline entry, and find that the deregulation encourages the entry of both state-owned and private airlines, and helps to improve service availability in remote areas. The positive effect on competitive entry is more pronounced on routes not served by direct HSR. Therefore, in the contestable sector of air industry, concerns that incumbent carriers may exercise excessive market power under deregulation appear to be less warranted.

Suggested Citation

  • Wan, Wei & Pang, Dongliang & Xiang, Jingjie, 2026. "Price cap deregulation and competitive entry: Evidence from China’s airline markets," Transport Policy, Elsevier, vol. 179(C).
    • Handle: RePEc:eee:trapol:v:179:y:2026:i:c:s0967070x26000211
    DOI: 10.1016/j.tranpol.2026.104011
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