Association for Public Policy Analysis & Management

Exogenous changes in entry barrier conditions faced by firms allows for an analysis of their impact on competition and market structure. On October 13, 2014, regulators repealed a perimeter rule (The Wright Amendment), but simultaneously introduced gate restrictions for airlines serving Dallas Love Field. The relaxation of the perimeter rule allowed Southwest Airlines to enter long-haul non-stop markets from Dallas, but their capacity was constrained due to the new gate restrictions. This empirical study finds that the policy changes at Love Field led to reduction in airfares on routes between Dallas and cities beyond the neighboring states of Texas, but increase in airfares on routes between Dallas and destinations in Texas and its surrounding states (collectively called the "Wright Perimeter"). Southwest's entry in markets where they were previously denied entry due to the perimeter rule contributes to the drop in fares. The fare increase in the short-haul Wright Perimeter markets indicates the impact of binding gate constraints. A simple capacity-constrained entry model is used to explain the opposite effects in different markets.