Letter Of Response

Essay by PaperNerd ContributorUniversity, Master's May 2001

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Airline Industry The airline industry has seen many changes in the past, and currently contunies to change. During the regulatory period of the industry, consumers faced high prices forced on them by the tight regulation of the Cival Aeronautics Board (CAB). After government regulation was eliminated consumers benefited from lower fares and increased sensitivity to consumer prefrences. The result of this sensitivity was more price and service options made available to the public, such as frequent flyer miles. Presently the industry is evolving into a price maker industry as it was during regulation. As with any market with high barriers to entry and exit consumers could be adversely effected. These barriers or lack of industry contestability, are directly contradicting to the deregulation action created by congress in the hopes of being socially beneficial.

Airlines have become a luxury and necessity for passengers because of the quickness of travel. The airline industry is responding to the growing demand for air travel.

As the lifestyles of people change and become quicker paced so does the demand for quick transpoortation methods. Airlines are responding to sociey's and because of the low degree of contestability they can control prices in many ways. Recently a trend of collusion has raised airline concentration almost 10 percent higher than the beginning of deregulation in 1978. As we have seen from the past to the present there is a pattern (?of direct comparison?) between the degree fo government intervention and the industry structure.

Congress saw the need for regulation for two main reasons. First, airlines were free to set their own prices and other industries were not. Second, due to competition congress thought airlines to be financially unstable. Before airline regulation concerns of interindustry dominance troubled the minds of other transportation industries. At this time other industries such...