There has been a perception that U.S. trunk airlines had an inherent cost advantage over smaller regional airlines because of economies of scale. We have formulated a general model of airline costs, which we estimate by using panel data on large and small airlines. Differences in scale are shown...

Hick's theorem permits aggregation of commodities when their relative prices are fixed, but, contrary to a widely expressed view, it does not require that they be aggregated. Even where commodities have identical prices, all of their income elasticities and many of their price elasticities can...