factors so as to increase profits. In each case, however, these developments have given rise to complaints that they will lead to the domination of the industry by a few large carriers, thus stifling the competition which reform was designed to promote.

Of all the developments, the hub and spoke system is the most intriguing. Under this system, individual carriers develop regional hubs into which they can channel flights from smaller cities within the region. This almost undoubtedly has increased load factors and therefore the overall efficiency with which customers can be served. $ ^{22} $ By funneling customers from small cities into regional centers where they have a wide choice of destinations, this system has improved the quality and frequency of service to these small towns. The development of this system under competition but not under regulation is among the clearest indications of the efficiency consequences of competitive markets and the difficulty of emulating those innovations in a regulated environment.

Some critics of deregulation have alleged that the hub and spoke system permits large carriers to achieve a form of market dominance. By flying all passengers within a region into a hub which they dominate, they reduce customers' choice of carriers in subsequent legs of the flight and increase the likelihood that customers will fly with a single carrier from origin to ultimate destination. The reality is different. While a single carrier may well "dominate" the hub it has created, this is somewhat akin to saying that an individual producer dominates production at a factory he has built. Competition occurs because customers have choices of carriers at the origin of the flight. The data presented in Professor Morrison's essay on the growth in the number of carriers serving individual routes is persuasive evidence that the hub and spoke system has increased customer choice.

Frequent flyer programs, of course, represent an effort by carriers to gain repeat business from their customers and to achieve a level of brand loyalty which would otherwise be difficult in a market where available alternatives all appear closely substitutable. The obvious difficulty is that such programs offer a substantial advantage to large ubiquitous carriers which can offer a wider range of alternatives than can a smaller, more regional carrier. Of course, small regional carriers may overcome this by combining with others to offer joint programs, but on the whole, the programs seem to favor larger carriers.

As Professor Morrison points out, these programs are of particular concern because of the principal-agent problem which they exploit. A large percentage of frequent flyer miles are earned by business travelers who choose the mode, but rarely pay the bill, for travel. This raises the possibility that the business traveler will choose the airline which most augments his frequent flyer benefits, to some extent independently of the price paid for the flight. If the same decisionmaker both paid the price and received the frequent flyer miles, these programs would operate no differently than other forms of volume discounts, and the efficiency consequences of the programs