The relationship, if any, between economic deregulation and consumer benefit

by Brian Wolfman

We have posted before on the large decline in airfares in light of the 1978 Airline Deregulation Act. (See also the chart to the right, and click on it to enlarge.)

But, in this piece, David Lazarus questions whether economic deregulation ever brings consumers lasting benefit. He worries about the just-announced U.S. Airways-American merger:

Experts were buzzing after the announcement with dire warnings of
higher fares, more crowded planes and fewer options for travelers — and
they're probably right. Once the merger is completed, four airlines — American, United, Delta and Southwest — will control about 75% of the U.S. market. . . . Richard H.K. Vietor, a professor of business administration at
Harvard Business School, said there have been numerous examples of
deregulation bringing prices down for varying amounts of time. In the case of airlines, he said, we've enjoyed decades of lower fares since the industry was deregulated in 1978. "That's the good thing," Vietor said. "The bad thing is that, as
we've seen, competition erodes and you get back to oligopolies." The U.S. airline industry now resembles how it looked in the 1930s,
he said, with just a handful of carriers controlling most air traffic.
As a result, the primary benefit of deregulation — lower fares — could
disappear as fewer airlines duke it out for business.

I'm not sure Lazarus has it right here. Nearly 35 years of lower airfares through deregulation shouldn't be sneezed at. Perhaps with greater regulation service would be better and those dreaded "fees" would be gone. (Although note the chart, which shows that fees are a quite small percentage of the cost of flying.) And perhaps the coming oligopoly will be so bad that the many years of deregulation will be deemed not worth it. Maybe additional economic regulation will be needed. Maybe regulators or Congress should take a skeptical view of future air industry mergers. But the chart is no lie. Stay tuned.

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