Evidence of Changing Contestability in Commercial Airline Markets During the 1980s

Abstract

In recent years, rising market concentration has been cited as an indicator of deregulation‐induced troubles within the U.S. commercial airline industry. In this paper, a contestable market framework is used to examine whether changes in market concentration increased airfares in 19 different destination markets at three different points in time. The empirical analyses indicate that concentration measures gained in importance in setting airfares during the 1980s suggesting that market contestability may have declined. The estimates also show that the demand for air travel, on average, became more own‐price elastic over the 1980s for the 19 destination cities analyzed.

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