Competition Law in Tourism

176 COMPETITION LAW IN TOURISM the existence of governmental economic regulation of the industry. Is it contradictory to say that this is a field that competitors can enter with ease, yet at the same time a field where only the strongest will survive? […] Economists who favor deregulation argue that to the extent that monopolistic tendencies exist, they are largely counteracted by competitive forces in a deregulated system. And, to the extent that such forces fail to maintain a competitive system, the regular antitrust laws that apply to other industries will come into play”9. In the initial stages of the US air transport deregulation, some economics studies focused on the question of whether airline competition would be either a natural monopoly or a contestable market. Today, both theories10 could seem anachronistic, but they still represent each extremity of this theoretical spectrum. According to the contestable markets theory, commercial aviation would be a kind of “natural competitive”, the playing field where capital on wings can enter and exit markets as each route, apprehended as a specific relevant market. A dominant airline would be under the permanent constraint of a potential entrant who offers lower costs and higher levels of services, so it would not be able to raise its fares unilaterally. Potential competition from a more efficient carrier will always be a threat to an existing monopoly, thus limiting the need for competition law and policy enforcement. Conversely, the natural monopoly theory contends that, due to its very structure and its economic model, the airline industry requires high start-up costs and large efficiency gains, possibly being the only provider to expect reasonable profits, especially on thin routes. In the natural monopoly hypothesis, the airline industry would have a natural tendency towards monopoly. By extension, this natural trend would also explain oligopolies. This situation would cause issues that would require a strong regulation and competition law safeguards11. 9 O’Connor, 2001, “An Introduction to Airline Economics”, 6th ed. Praeger. 10 See infra. 11 White, 1978, “Economies of Scale and the Question of Natural Monopoly in the Airline Industry”, Journal of Air Law and Commerce, Volume 44, Issue 3, Article 3: “We wish to know whether […] economies of scale are so substantial that there is room in the industry for only one or two efficient size companies, so that the industry would present serious monopoly or oligopoly problems that would require regulation to achieve our pricing goal”.

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