186 COMPETITION LAW IN TOURISM would be little interest in entering hyper-competition with carriers using predatory behaviours and aggressive low fares. Fierce competition would reduce airlines short-term profitability and even break long-term strategic goals. The strategic decision of opening and closing routes requires a clear assessment of traffic and profitability on each market. Mutual forbearance can explain the behaviour and even the psychology of potential competitors. Most of the time, deterrence is a decision “not to go” with little public empirical evidence which is taken on top management levels. That is the reason why mutual restraint is particularly difficult to be apprehended by fully reliable economic data and legal existing frameworks. A potential entrant can indeed be deterred from entering existing routes already operated by a well-established airline on many potential routes, and this decision “not to enter” is based on the prospective belief that entry will not be successful. 3.3. The Trend towards Monopoly and Oligopoly Before the early years of liberalisation, air transport had long been regarded as meeting the characteristics of a natural monopoly33. Under the conditions of a natural monopoly, the market would be best served when only one carrier would be able to supply the market. Competition would need a duplication of capital and fixed costs facilities and assets thus disturbing the global allocative efficiency. Furthermore, competition would have adverse effects on air transport. The natural trend to monopoly or oligopoly would be reflected by the fact that competition would eventually lower the traffic load factors, resulting in increased costs and higher fares. In a liberalised market, a free airline market can lead to situations in which airlines are in a monopoly situation because either the route is too thin to be operated by two or more carriers or the dominant carrier has a strong base at the airport and will deter potential competitors, situations that can lead to serious competition issues. The behaviour of the incumbent firm seeking profit and return on investment can easily lead to higher prices charged to consumers. This allocative inefficiency will increase the likelihood of monopoly pricing and will prevent any consumer surplus, thus transferring wealth from consumer to the producer. In order to prevent the existing monopoly from exploiting its power, a strong public regulation and competition law intervention is required. In a monopoly situation, regulation by competition authorities may not be necessary 33 Pavaux, 1984, “L’économie Du Transport Aérien – La Concurrence Impraticable”, Economica.
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