Review of Industrial Organization 15: 77–88, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
The Effects of Market Structure and Technology on
Airline Fleet Composition after Deregulation
School of Business Administration, The University of Portland, 5000 North Willamette Blvd.,
Portland, Oregon 97203
Faculty of Commerce & Business Administration, The University of British Columbia, 2053 Main
Mall, Vancouver, B.C. V6T 1Z2, Canada
Department of Economics, University of Nevada, Reno, Reno, Nevada 89557, USA
Abstract. The present study examines the effects of market structure and technology on airline
ﬂeet composition in the deregulated airline industry. To capture the effects of market structure and
technology on airline ﬂeet acquisition and use, a proﬁt function which allows airline ﬂeet in its
speciﬁcation is applied to derive the ﬂeet composition function of an airline. The results show a
steady pattern in airlines’ adoption of two-engine wide-bodied aircraft during the post-deregulation
era, providing evidence that the airlines have responded consistently to changes in market structure
and technology in acquiring two-engine wide-bodied aircraft after deregulation.
Key words: Deregulation, airline industry, market structure, technology, ﬂeet composition.
During the decade of 1980, laissez-faire policies were enacted that affected the
market structure in many US industries. The domestic airline industry is a notable
example. The architects of deregulation in general and economists in particular
argued that the major beneﬁts of the airline industry deregulation were: (i) the
price–marginal cost differential for short, medium and long haul trips would be
eliminated; (ii) carriers would enter or exit routes, not only leading to elimination
of excessive service competition, but also increasing the number of ﬂights and load
factor without a serious decline in safety or service to small communities; (iii)
carriers would have more ﬂexibility to adjust fares, route structures, equipment,
and the level and prices of production factors leading to lower operating costs and
The authors would like to thank an anonymous referee and Mark Nichols for their helpful
comments and suggestions. Any remaining errors are the responsibility of the authors.