| This dissertation investigates whether the financial viability of the US airline industry is best aided by innovation and deregulation as free market theorists advocate, or by reregulation and public subsidy as empty core theorists insist is necessary. To this end, the complex histories of two radical innovations in the airline industry are traced since the Airline Deregulation Act of 1978 to assess their impact on the industry's financial performance, namely Computer Reservation Systems and Hub and Spoke Systems.;Economic theory, strategic analysis, and institutional theory are used in this study to assess the competitiveness and economic viability of American Airlines, Continental Air Lines, Delta Air Lines, Southwest Airlines, and United Air Lines, subsequent to deregulation in 1978. Although the predicted link between crisis and innovation is confirmed, this study concludes that free markets and deregulation as currently practiced lead to an empty core and the probable demise of the airline industry as we know it today. In theory, radical innovations used as key resources allow innovators to gain above industry rents, create barriers to entry, and develop follow-on innovations. However, these benefits have too often been subverted in the airline industry due to antitrust confiscation of innovators' competitive advantages and profits. Consequently, government intervention and other institutional forces have often negated radical innovation as a possible way out of the empty core.;Policy alternatives for dealing with these realities inevitably involve tradeoffs with other national priorities such as national security, safety, economic prosperity, environmental protection, energy conservation, service to all parts of the country, airport and airspace infrastructure, and antitrust, which further complicate the policy landscape. This research reveals that the institutional complexities of the industry are so far reaching that simple solutions are illusive, and argues, therefore, that simplistic characterizations of free markets versus regulation are no substitute for a deeper understanding of the diverse institutional and political forces shaping this industry. Taken as a whole, this dissertation offers a more comprehensive account of the complexities of this strategically important industry and the factors that must be accounted for in fashioning robust policy to alleviate the industry's perennial crises and stave off its imminent collapse. |
