Airline Deregulation: The Cost Pieces of the Puzzle

Abstract

This paper analyzes cost changes in the U.S. airline industry in the pre- and postderegulation era using a panel data set of airlines. Specifically, it seeks to disentangle cost changes attributable to technical change, economies of scale and density, and input prices. The authors estimate a purely general index of industry technical change and in turn analyze its determinants. Despite the slowing of productivity growth in the 1980s, deregulation does appear to have stimulated technical change due to more efficient route structures. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.