Investment and regulation: the case of Canadian air carriers

We investigate the causes of increasing concentration in the Canadian air carriers industry over the last four decades, and assess possible links with deregulation and investment decisions. We measure the technology of firms in a dynamic framework that includes regulation. The model is tested with data on seven air carriers operating between 1960 and 1999. Traditional technological parameters are recovered: marginal factor productivity, returns to scale, and technical change. We conclude that deregulation only had a slight positive impact on productivity and that it may have contributed to increasing concentration by allowing firms to expand and fully capture returns to scale.