Competition and efficiency in the European airline industry, 1976-1990

The European Economic Community has "opened the European skies" with its liberalization plan for the airline industry. This plan will expose the heavily protected European airlines to a competitive environment. The cost of travel in the European market has been historically higher than comparable distances in the US market. This dissertation studies the level of competition and efficiency in the European airline industry, to explain the higher prices in Europe. This study uses a panel of the eight largest European carriers--Air France, Alitalia, British Airways, Iberia, KLM, Lufthansa, Sabena and SAS--with annual data from 1976 through 1990.The first paper tests for market power in the industry and calculates the markup of price over marginal cost. The second paper examines the labor market for evidence of monopsony or monopoly power, to explain inefficiencies. In the last paper, I develop a dynamic model to simulate and solve for optimal profit-maximizing levels of labor, capital and network size for the eight European carriers.