Aviation Industry : The Case Of India Essay

Aviation Industry : The Case Of India Essay

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Oligopolist Aviation Industry: The case of India

INTRODUCTION

This paper discusses how the formation of cartels, resulting from an oligopolistic structure, places the market at a less than socially optimal level in the economy. Hiked pricing, high opportunity costs of time, and scarcity of the number of flights due to inadequate supply suggest that the aviation sector suffers due to the formation of these cartels. I will be looking at the Indian Aviation sector in particular in the first part of the paper, and would discuss possible solutions by comparing the aviation sectors of different states in the second part of the paper.

BACKGROUND

The transportation sector is an integral part a country’s economic growth and development. When it comes to the case of a developing country like India, focus on an efficient transportation system is crucial for growth. India is currently the 9th largest aviation market in the world, with 128 airports, 15 of which are international. A recent study by Nathan Economic Consulting India Pvt Ltd shows that over the decade, the Indian civil aviation sector “grew by 14.2% in terms of domestic passengers and 7.8% in terms of air cargo”. With over 143 million passengers were catered to in 2010-2011, and approximately 1.6 million tons of air cargo was carried, the aviation sector in India is rapidly gaining importance. It is estimated that foreign exchange transactions of $22.5 billion are directly facilitated by civil aviation and another $96 billion indirectly through civil aviation services. 95% of tourist arrivals are by air. “Airports facilitate growth of high value and perishable trade; 40% of exports and imports in India by value are carried by air. The sector might one day also serve to rou...


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...tructure, they would not want a new developer in their area as that would impact their profit margin. The developer would exercise the ‘right to first refusal’ and invest in another airport nearby as they would lead a local monopoly in the region or city.

CONCLUSION

This part of the paper focused broadly on the economic issues that the Indian aviation sector faces currently, while recognizing that more in depth assessment of these issues is crucial. There are many provisions in place that lead to an anti-competition structure within the aviation sector which need to be further discussed and highlighted. The next part of the paper would further talk about how different countries deal with similar issues and if whether the Indian aviation sector can undertake those policies, and further discuss what the scope of the Indian Aviation sector holds in the coming years.

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