The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Airline Industry

  • Severin Borenstein
  • Nancy Rose
Reference work entry


The 1978 US airline deregulation benefited passengers through lower fares and expanded service. Airline privatization and liberalization elsewhere in the developed world has since had similar effects. Still, there have been some unanticipated effects: hub-and-spoke networks have efficiency appeal, but they also increase congestion and confer market power on dominant airlines; price discrimination is widespread; loyalty programmes exacerbate market power concerns; airline finances are subject to extreme cyclic volatility; and labour is a significant residual claimant on profits. Airline competition and industry structure remain in flux: entry and exit are commonplace, as is experimentation with new pricing and products.


Airline deregulation Airline industry Market power Price discrimination Principal–agent conflict 

JEL Classifications

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  1. Borenstein, S. 1992. The evolution of US airline competition. Journal of Economic Perspectives 6(2): 45–73.CrossRefGoogle Scholar
  2. Borenstein, S., and Rose, N. 2006. Airline deregulation and liberalization: Lessons learned. Working paper. Cambridge, MA: NBER.Google Scholar
  3. Morrison, S., and C. Winston. 1995. The evolution of the airline industry. Washington, DC: Brookings Institution.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Severin Borenstein
    • 1
  • Nancy Rose
    • 1
  1. 1.