ESTIMATING THE EFFECTS OF PRICE LIBERALIZATION IN CHINA’S AVIATION INDUSTRY

Abstract

China’s domestic aviation industry has undergone price liberalization reform via the deregulation of airfare since 2004. However, the impact of this policy has not been scientifically evaluated. This paper aims to analyze the effect of the 2017 price liberalization reform on airfares and identify the primary cause of this effect from the perspective of competition within the industry. Empirical results show that the liberalization of airfares leads to a significant increase in the average price of tickets. And the concentration of route markets plays a role in raising fares above the equilibrium level, which diminishes social welfare. Furthermore, heterogeneity analysis demonstrates that the liberalization policy has a greater impact on fares for long-haul routes, nonleisure routes and routes operated by carriers other than low-cost carriers (LCCs).