Estimating the Economic Effects of Airline Deregulation: Evidence from the Turkish Airline Industry (original) (raw)

This paper mainly studies the economic effect of deregulation and analyzes the Turkish airline industry. We postulate that deregulation simultaneously decreases prices through the presence of actual competition and increases quantity demanded through accessibility to air transport. We define this simultaneous interaction as the economic effect of deregulation. In order to empirically investigate this effect, we employ cointegration methodology with structural breaks. While cointegration methodology enables to empirically investigate the simultaneous long-term relationship between deregulation, prices, and quantity, the estimation of structural breaks reveals the effect of removing price and entry restrictions. The findings confirm that airline deregulation in Turkey leads to the decrease in prices and the increase in quantity. through the presence of actual competition and increasing demand through accessibility to air transport. Later, we develop an innovative econometric methodology to test those hypotheses that were central to the arguments for the economic effects of deregulation. We employ a simultaneous cointegration approach with structural breaks. The findings confirm that deregulation affects demand and prices through accessibility and actual competition and thus improves market welfare.