Friday, 4 June 2010

Airlines and returns to scale

Over at his blog John Macilree notes that the Top 10 airlines almost all have relatively small home markets. Could this simply reflect the fact that airlines have increasing returns to scale which require a large market to exhaust and thus airlines in small countries have an incentive to enter the international market, which is more competitive than the local markets, and quality improvements are driven by the increased competition.

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