ACADEMY ASSOCIATION OF ECONOMICS CERTIFIED CHARTERED ECONOMISTS CHE CEPA

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many Americans was synonymous with the era of passenger airline travel, and Eastern Airlines, which carried more passengers per year than any other American airline -- failed. United Airlines, the nation's largest single airline, ran into trouble and was rescued when its own workers agreed to buy it. Customers also were affected. Many found the emergence of new companies and new service options bewildering. Changes in fares also were confusing -- and not always to the liking of some customers. Monopolies and regulated companies generally set rates to ensure that they meet their overall revenue needs, without worrying much about whether each individual service recovers enough revenue to pay for itself. When airlines were regulated, rates for cross-country and other long-distance routes, and for service to large metropolitan areas, generally were set considerably higher than the actual cost of flying those routes, while rates for costlier shorter-distance routes and for flights to less-populated regions were set below the cost of providing the service. With deregulation, such rate schemes fell apart, as small competitors realized they could win business by concentrating on the more lucrative high-volume markets, where rates were artificially high.

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Friedrich August von Hayek, 1974 Nobel Prize Winner

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