Time Sensitivity of Passengers and Market Structure in the Airline Industry: Model of International Air Transport

The international airline industry is characterized by radical changes in regulation and firm behavior. Open-sky agreements abolish market entry restrictions, and global strategic alliances replace the government controlled national carriers. With deregulation and the restructuring of firms still in progress, the future design of market structures cannot easily be predicted. Will airlines behave competitively or is there danger of collusion? Do large networks lead to monopoly supply? And what are the effects of open skies on consumer welfare? Roland Fischer answers these questions by developing an economic model that combines traditional monopoly and oligopoly theory with specific features of air transport markets, like hub-and-spoke systems and passengers’ valuation of time. The theoretical results are completed by case studies, which illustrate firm behavior and the development of market structures in an increasingly liberal environment.