Economies of scale in the US airline industry after deregulation: a Fourier series approximation

This paper analyzes the cost structure of the US airline industry after der egulation, finding that there exist economics of scale at moderate levels o f output but that they die off at high levels. The cost-share system is est imated using the Fourier functional form. The global approximation property of the Fourier form allows consistent inference throughout the range of th e data. The existence of economies of scale suggests that airlines will try to grow to the efficient size. This conclusion is consistent with the evol ution of the US airline industry in the last decade. (C) 2001 Elsevier Scie nce Ltd. All rights reserved.