COMPETITION POLICY AND THE LIBERALIZATION OF EUROPEAN AVIATION

The European aviation industry is undergoing a process of liberalisati on. One of the important lessons of American deregulation was that the industry is not perfectly contestable. One implication of this is tha t actual competition on a route is important in order to be able to se cure the benefits of deregulation or liberalisation. Another is that e ffective competition policy is important in order to prevent anti-comp etitive mergers or predatory behaviour. This paper reviews the merger investigations in European aviation which have accompanied the search by carriers to secure the benefits of market power, and considers the extent of route competition within the European Community and its rela tionship to the different route licensing policies of different nation al governments. The paper considers the extent of present competition on the busiest routes, and stresses the importance of cabotage rights in opening up the European market to effective competition.