The contestability of the Australian airline industry.

This thesis discusses the contestability theory with application to the Australian airline industry. Initially, it was assumed that an airline industry was an example of a contestable market. That is, the criteria outlined for a contestable market were satisfied by a given city pair. However, post deregulation experience in Australia and the U.S. has suggested that these criteria do not hold for a variety of reasons. This thesis analyses the Australian domestic airline industry and the subsequent entry and exit of a number of airlines. The reasons that contestability is not satisfied include a combination of both natural and industry created barriers to entry. An analysis of prices during this period reveals that the trends evident are not consistent with the contestability theory and are more accurately described by a limit pricing model. This analysis of the criteria required to fulfil contestability indicates that the Australian domestic airline industry is not a contestable market.