The international regulation of air transport : changing regimes and price effects

The thesis consists of two major sections. In the first section, regulatory changes in the international air transport industry were traced from the Second World War to the present. A modified version of hegemonic stability theory was formulated and applied to the industry in an attempt to explain the developments. In that hegemonic theory could not adequately explain some of the major developments, additional domestic political and market structural variables were introduced in order to arrive at a more comprehensive model of regime change. The comprehensive model added significantly to the explanation of regime developments. Finally, the model was used to predict future developments in the industry. It was predicted that there was still political credit to be gained from air services liberalization in developed areas of the world, such as Europe, and that regulations in these areas are likely to be liberalized. In the second part of the thesis, a model was developed from profit-maximizing principles to explain price differences on international air routes. Major assumptions of the model were that airlines competing on liberalized air routes engaged in Bertrand pricing behaviour, while carriers competing on non-liberal routes colluded to set prices. These assumptions were consistent with industry practices. Data were gathered on 51 international air routes between the years 1976 and 1981, the period when the United States first introduced liberal bilateral agreements. Several empirical versions of the model were used to test for price effects that arose from the liberal agreements. The findings were that the liberal agreements contributed to significantly lower discount fares but not necessarily to significantly lower normal fares. The findings were consistent with the use of greater price discrimination under the liberal bilateral agreements.Business, Sauder School ofGraduat