deregulation of the industry, it is reported that many airline companies have opted to merge or engage in airline alliance, which are characterized as virtual mergers to circumvent government restrictions (Doganis, “Flying Off Course”). An implication of these mergers is that the few surviving consolidated airline companies may exhibit oligopolistic behavior. This may include monopolizing of routes and charging excessive rates for some fares. In this regard, the industry competition is somehow diminished. Other airline companies may experience substantial profit reduction as their service offerings become relatively less competitive as compared to big industry players.
In view of the above, the government must intervene by implementing policies that would promote competition within the airline industry. By enforcing policies such as the prohibition of oligopolistic/monopolistic business practice, the government is able to promote greater efficiency in the market (Samuelson & Nordhaus).
As the government deregulated the airline industry, airlines have become better equipped in negotiating their operating arrangements with different airports as well as their entry and exit routes. Furthermore, these airline companies have become better in levying airfares and supply flight based on market demand (Doganis, “The Airline Business”). The deregulation boded well for both airline companies and their customers. However, with the anti-competitive practices discussed above, the objective of the deregulation is being violated. Given this, the government should somehow tighten its control over the industry such that competition and consumer welfare are promoted.
With the September 11 attacks, the airline industry experienced economic shock as people became traumatized of flying. Furthermore, security restrictions rendered traveling more difficult. Considering this, thousands of employees were laid off as major airlines filed for bankruptcy. To address