This paper introduces and analyzes a monopolistically competitive model of airline markets which takes account of the product differentation effect resulting from variation in flight departure times, and the effects of flight frequency and load factor on service quality. The basic results are that (1) when the direct benefits (to consumers) of increasing flight frequency are exhausted, socially optimal choices of price and frequency result in zero profits for the industry, but (2) a noncooperative, free entry equilibrium always results in higher prices, lower load factors, and greater frequency than are socially optimal.

Journal Article Economies of Scale and the Profitability of Marginal-Cost Pricing: Reply Get access John C. Panzar, John C. Panzar Bell Laboratories Search for other works by this author on: Oxford Academic Google Scholar Robert D. Willig Robert D. Willig Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 93, Issue 4, November 1979, Pages 743–744, https://doi.org/10.2307/1884483 Published: 01 November 1979

I. Introduction, 481.—II. Counterexamples, 482.—III. Economies of scale, 484.—IV. Technological regularity conditions, 487.—V. The profitability of marginal cost pricing, 488.—VI. Concluding remarks, 492.

Recently, economists have begun to develop a theory of the perfectly competitive firm and industry in long-run equilibrium.' In contrast to the traditional model2 in which all prices are parametric, this new theory takes explicit recognition of the fact that output price must adjust to exogenous changes in input prices before the industry can be said to be in long-run competitive equilibrium. The focus of this analysis has been to derive implications of competitive theory which can be tested using data generated by observing individual firms in

This article focuses on the use of incentive regulation in the telephone industry in the United States. We first characterize some of the difficulties that have led regulators to move away from traditional rate-ofreturn (cost-based) regulation and toward systems of regulation that provide incentives for increasingly efficient production, allowing firms to share in the social gains from efficiency with increased profits. We then discuss the basic structure of incentive regulation as it has most commonly been adopted in the telephone industry in the United States. The first is price-cap (PC) regulation, which typically allows the firm to