Review of Industrial Organization 22: 275–296, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Competition and Service Quality in the U.S.
MICHAEL J. MAZZEO
Department of Management and Strategy, Kellogg School of Management, Northwestern University,
Evanston, IL 60208. E-mail: email@example.com.
Abstract. The U.S. government, media, and ﬂying public have expressed great concern in recent
years over both airline market concentration and ﬂight delays. This study explores potential connec-
tions between the two by examining whether the lack of competition on a particular route results
in worse on-time performance. Analysis of data from the U.S. Bureau of Transportation Statistics
in 2000 indicates that both the prevalence and duration of ﬂight delays are signiﬁcantly greater on
routes where only one airline provides direct service. Additional competition is correlated with better
on-time performance. Weather, congestion, and scheduling decisions also contribute signiﬁcantly to
explaining ﬂight delays.
Key words: Airlines, competition, ﬂight delays, quality.
JEL Classiﬁcations: L13, L43, L93
Deregulation of commercial airline transportation in the United States has con-
tributed to a striking overhaul in an industry that is crucially important to the
American economy. Economists predicted that unregulated competition among
airlines would result in lower costs and reduced fares for consumers. It was also
hoped that consumers would beneﬁt as competing airlines offered improved levels
of service to attract demand. While the skies have been somewhat bumpy for carri-
ers – particularly those unable to successfully cut costs – the most efﬁcient airlines
have been able to thrive in the two decades since deregulation.
One concern that accompanied deregulation was that scale economies inherent
in air transport might hold down entry and leave the number of airlines operating
in a competitive system relatively small. If particular markets were concentrated
as a result, consumers would be vulnerable to higher prices. Indeed, studies of
airline pricing have demonstrated that while deregulation has reduced most fares,
prices are lower when the number of airlines ﬂying between a given pair of cities
Thanks to Meghan Busse, Cory Capps, participants at the IDEI/CSIO workshop in Toulouse,
two anonymous referees, and the editor John Kwoka for very useful insights. Special thanks to Scott
Schaefer for his assistance and suggestions.