Degree Year

1987

Document Type

Thesis

Degree Name

Bachelor of Arts

Department

Economics

Advisor(s)

Robert Piron

Keywords

Airline, Bus, Industry, Regulation, Deregulation, Travel

Abstract

This brief excerpt, although not particularly fascinating in its revelation, is exemplary of a far more complex aspect of modern American economic policy. During the 1930's, American regulatory fervor was at its peak. Fear of a repeated economic upheaval, like that of 1929, compounded with the exorbitant profits earned by the robber barons spawned government intervention. Consequently, regulation was imposed upon numerous industries, including air and bus transport.

Four decades later restrictions have been lifted not only in the airline industry but in the intercity bus industry as well. These changes are part of the new laissez faire govermnent of the late 1970's and, thus far, the 1980's. By allowing the owners of industry and business to essentially go 'head to head', the government has introduced very powerful market forces which threaten to shake the stability of some of this nation's more steadfast corporations. Those companies that first came to mind within the transportation sector are Greyhound and Trailways, clearly the market leaders for the bus industry.

This paper is founded on the contention that the government, in deregulating the airline industry, failed to take into account the 'spillover' effects for other industries. The industry of particular interest within this context is the intercity bus industry. The intercity bus industry has received very little notoriety with respect to airline deregulation. In fact, it has received very little attention altogether from both media and academia. There are, for instance, no definitive texts on the industry, nor has there been a proliferation of studies conducted with regard to industrial analysis. This is only partially explained by the bus companies themselves, which inhibit the degree of industrial analysis through protective proprietary policies.

It is, therefore, the purpose of this paper to analyze the effect that airline deregulation has had on the intercity bus industry. The paper begins with a brief historical sketch for the intercity bus industry, including a description of the conditions under regulation. This is followed by a discussion of the Bus Regulatory Reform Act and its effects upon the industry. In section III, I analyze the structure of the bus industry, placing particular emphasis on market concentration, demand, and profitability. This is followed by an analysis of the. factors responsible for the industry's financial decline. In section IV, I introduce evidence that suggests that the air and bus industries are linked, which is followed by a brief historical sketch of the airline industry. Section VI offers a comparison of the demand demographics between bus and air travel. Finally, I conclude the paper with an empirical analysis of the effect of airline deregulation on the demand for bus service. This end is achieved in two parts. First, I demonstrate that airline deregulation has led to a drop in the level of fares. Secondly, I estimate the supply and demand equations for the bus industry and demonstrate that the quantity demanded of bus travel is, in part, dependent upon the price of air travel.

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