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Bauer","","Economic analysis of the U.S. airline industry examines how competition, market concentration, and passenger fares relate after deregulation and subsequent merger waves. The discussion evaluates national versus airport-level concentration, highlights hub-and-spoke network effects that concentration measures may miss, and reviews entry barriers that can create market power. Policy implications emphasize adjusting airport resource allocation to lower entry barriers and improve competitive outcomes in markets with less-than-competitive fares.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/competition-concentration-and-fares-in-the-us-airline-industry-by-paul-w-bauer/322155/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/competition-concentration-and-fares-in-the-us-airline-industry-by-paul-w-bauer/322155.png","ImageObject",300,407,{"name":92,"@type":93},"Ophelia","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-29","2026-09-21",true,{"@type":102,"interactionType":103,"userInteractionCount":44},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"How does market concentration relate to airfares in traditional economic theory?","Question",{"text":112,"@type":113},"Traditional theory predicts that higher concentration increases market power, enabling firms to charge prices above competitive levels.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"Why might concentration measures overstate the competition problem in airlines?",{"text":117,"@type":113},"Because concentration statistics often fail to account for hub-and-spoke networks, which can raise airport-level concentration without necessarily raising fares.",{"name":119,"@type":110,"acceptedAnswer":120},"What policy direction is suggested to reduce entry barriers and improve competition?",{"text":121,"@type":113},"Adjustments in how airports allocate resources among airlines could lower entry barriers and increase competition in markets with less-than-competitive fares.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},322155,1790472405,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":44,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":24,"language":139,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":140,"faqs":141,"seo_title":142,"seo_description":67,"update_tm":143,"read_time":144,"preview_page_count":4},7971461741311,"https://ap-avatar.wpscdn.com/avatar/74000253aff267980c6?x-image-process=image/resize,m_fixed,w_180,h_180&k=1779345379180704826","ECONOMICCOMMENTARY  \nThe current performance of the U.S.airline industry with regard to safety,fares,and service has been a topic ofwidespread concern among policymak-ers and the public.One aspect of thisconcern is the relationship betweencompetition,concentration,and airfares.Competition is required toachieve and preserve the full benefits ofderegulation,particularly if fares are tobe set as low as possible.  \n\n| Table 1 National Market  \u003Cbr>Shares of the Largest U.S.  \u003Cbr>Airlines¹  \u003Cbr>Airline  \u003Cbr>Market Share  \u003Cbr>20.1  \u003Cbr>Texas Air  \u003Cbr>10.5  \u003Cbr>Continental²  \u003Cbr>9.6  \u003Cbr>Eastern  \u003Cbr>15.7  \u003Cbr>United  \u003Cbr>13.5  \u003Cbr>American  \u003Cbr>11.9  \u003Cbr>Delta³  \u003Cbr>9.4  \u003Cbr>Northwest⁴  \u003Cbr>8.1  \u003Cbr>TWA⁵  \u003Cbr>5.7  \u003Cbr>Pan Am  \u003Cbr>3.0  \u003Cbr>USAir  \u003Cbr>1.Market shares are based on each carrier's  \u003Cbr>percent of revenue passenger enplanements  \u003Cbr>on a nationalbasis.  \u003Cbr>2.Includes New York Air,People Express,  \u003Cbr>and part of Frontier Airlines.  \u003Cbr>3.Includes Western's market share.  \u003Cbr>4.Includes figures for Republic,which was  \u003Cbr>formed by the merger of North Central and  \u003Cbr>Southern.  \u003Cbr>5.Includes Ozark's market share.  \u003Cbr>SOURCE:Data derived from\"Texas Air's  \u003Cbr>Hard Bargainer,\"New York Times,September  \u003Cbr>16,1986.   |\n| --- |\n\nTraditional economic theory predictsthat increases in concentration(asmeasured by the market shares of thelargest firms in the industry)lead toincreases in market power(the abilityof firms to charge a price higher thanwould prevail in a competitive market).As a result of a wave of mergers in theairline industry over the last year,these measures of concentration haverisen significantly,leading to a greatdeal of discussion about the negativeimplications for competition and fares.Unfortunately,much of this discussionsuffers from an inadequate understand-ing of the nature of the hub-and-spokenetworks that airlines formed after theAirline Deregulation Act of 1978.  \nThis Economic Commentary seeks toassess the true state of competition andconcentration in the airline industry.We first present the current measuresof concentration at both the nationaland airport levels.Evidence suggeststhat some types of fares are set abovethe competitive level.However,thestate of competition is not as bad as themeasures of concentration indicate,because these measures fail to accountfor the effects of hub-and-spoke net-  \nworks.The efficient operation of hub-and-spoke systems leads to higher con-centration at the airport level,but notnecessarily to higher fares.  \nWe then examine the sources ofmarket power airlines have as a resultof entry barriers.Any barrier thatmakes it difficult for new firms to enterthe market limits competition,leading  \nth  \nPaul W.Bauer is an economist at the FederalReserve Bank of Cleveland.The author thanksMary Deily and Gary Whalen for helpful commentsand Paula Loboda for extensive research assistance.  \n1.A widely applied rule of thumb comes fromU.SCircuit Court Judge Learned Hand:“...[amarket share over ninety percent]is enough toconstitute a monopoly;it is doubtful whethersixty...percent would be enough;and certainly  \nThe views stated herein are those of the authorand not necessarily those of the Federal ReserveBank of Cleveland or of the Board of Governors ofthe Federal Reserve System.  \nCompetition,  \nConcentration,andFares in the U.S.Airline Industry  \nby Paul W.Bauer  \nto higher fares.Adjustments in theway airports allocate resources amongairlines would go a long way towardlowering entry barriers and increasingcompetition in markets with less-than-competitive fares.  \nCurrent Levels of ConcentrationAs a result of a wave of mergers in1986,the U.S.airline industry wentfrom domination by 12 carriers to dom-ination by eight carriers.Table 1 pre-sents the current market shares of theeight largest airlines,based on revenuepassenger enplanements.Texas Air,which controls both Continental andEastern,has become the largest airline,pushing United and American intosecond and third places.  \nAt the n","cbCaioUTa7PvrlwP","https://ap.wps.com/l/cbCaioUTa7PvrlwP","pdf",1408965,"English","# Competition, Concentration, and Fares in the U.S. Airline Industry\n## Current Levels of Concentration\n## Hub-and-Spoke Networks and Market Power\n## Entry Barriers and Policy Implications","[{\"question\":\"How does market concentration relate to airfares in traditional economic theory?\",\"answer\":\"Traditional theory predicts that higher concentration increases market power, enabling firms to charge prices above competitive levels.\"},{\"question\":\"Why might concentration measures overstate the competition problem in airlines?\",\"answer\":\"Because concentration statistics often fail to account for hub-and-spoke networks, which can raise airport-level concentration without necessarily raising fares.\"},{\"question\":\"What policy direction is suggested to reduce entry barriers and improve competition?\",\"answer\":\"Adjustments in how airports allocate resources among airlines could lower entry barriers and increase competition in markets with less-than-competitive fares.\"}]","Competition, Concentration, and Fares in the U.S. Airline Industry - by Paul W. Bauer | PDF",1789961181,13]