capacity and 50:50 revenue pooling. Markets were also characterised by the presence of subsidised airlines, usually national flag carriers.

Button (1995) has identified four broad pressures that have given rise to slow but definite liberalization of European air transport markets since the early 1980s. First, some national regulatory authorities gradually became less restrictive in the allocation of licences and in the acceptance of at least some degree of price deregulation. The pace of change here has been variable, with countries such as Britain and the Netherlands in the lead but others, such as France, Germany, Italy and Spain being much less keen on domestic liberalization.

Second, there have been moves to liberalize the bilateral agreements between some Member States of the EC, starting with an agreement in 1984 between the UK and the Netherlands that relaxed rules first on market entry and then on fares for routes. The pace of change has again varied considerably from route to route depending upon the attitudes of the relevant governments to liberalization and deregulation.

Third, there has been pressure from the United States on individual EC Member States to develop more liberal bilateral agreements. This has proved partially successful in that the Netherlands and a number of smaller European countries have signed up to new, liberalized agreements. Larger EC Member States have, however, resisted, including Britain where the generally pro-liberalization policy stance has been set aside in favour of retention of a restrictive, but highly favourable (to UK interests) bilateral agreement with the United States. US pressure has also been a factor in leading the EC Commission to seek to negotiate future bilateral agreements for the Community as a whole, rather than leaving matters to individual Member States.

Fourth, the EC institutions themselves came increasingly to the view that a common aviation policy should be developed. Despite calls in the 1950s for a Europe-wide aviation system and despite a 1974 European Court ruling that civil aviation was subject to the general rules of the Treaty of Rome, until relatively recently the European Council and Commission have proved reluctant to apply the Treaty's principles in this area. The position did, however, begin to change gradually in the later 1980s.

The general framework of competition rules in the Community derives chiefly from Articles 85 and 86 of the Treaty and from the much more recently introduced merger regulation. Article 85 prohibits inter-firm agreements, with exemption possibilities for arrangements that can be demonstrated to have economic benefits, while Article 86 prohibits abuse of a dominant position. The merger regulation gives the Community authorities jurisdiction over large amalgamations whose effects are unlikely to be confined to a single Member State. In addition, the Community is much concerned with the problem of state aids and the distorting effects that these might have on competition, an area of considerable importance given the high degree of state ownership in the European airline industry.

An important feature of Community competition policy, and one which distinguishes it from classic antitrust policies, is that it seeks the creation of a “single market”, an objective that