Is the Airline Industry a Natural Monopoly or a Contestable Market? The Enforcement of EU Competition Law Viewed Through the Prism of Airline Economics Romain Papy1 Abstract; 1. Overview; 1.1. EU Competition Law and Economics; 1.2. The Paradox of Airline Economics; 1.3. The Control of Concentrations in the Airline Industry; 2. The Harmless Effect of Concentration Highlighted by Airline Economics; 2.1. The Theory of Contestable Markets in the Airline Industry: “Capital onWings”; 2.2. The Benefits of Economies Of scale, Density and Scope; 3. The Anti-competitive Effects of Concentration Highlighted by Airlines Economics; 3.1. The Limits of the Theory of Contestable Markets and the Remaining Issue of Barriers to Entry; 3.2. The Mutual Forbearance Hypothesis; 3.3. The Trend towards Monopoly and Oligopoly; 4. EU Competition Law Enforcement in the Light of Airlines Economics; 4.1. Potential Competition and the Theory of Contestable Markets; 4.2. Barriers to Entry and the Theory of Mutual Forbearance; 4.3. Economic Efficiencies versus Consumer Welfare; 4.4. Free Market versus EU Internal Market Integration; Conclusion; References. Abstract The emergence of global alliances and low-cost carriers (LCCs)2 followed the liberalisation of the European air transport markets, which began in the mid- -1990s. In order to bring down their unit costs, the major fullservice carriers (FSCs) have strengthened their hub-and-spokes models and have sought cooperation through complementary network integration, mergers and global alliances. The LCCs have generated a vital part of the traffic growth employing traffic stimulation (passengers that otherwise would not travel or travel by other modes) instead of 1 General Manager FBO (Business Aviation Terminal & Handling) chez Dassault Falcon Service. 2 The lists of airlines classified as low-cost carriers in the literature include a broad range of business models that go from the pure lowcost model operating from secondary airports to fullservice models that have a middle cost structure and operate frequencies from main airports.
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