THE airline industry has always captured the imagination, but never more so than during the current deregulatory period. To understand the sources of economic rents that are the driving forces for change in this industry, we employ an interdisciplinary analysis drawn from the economics and strategy literature. This analysis allows us to identify sources of rent that are geographically based (local monopoly sources) and others that stem from economies of scale-based advantages in providing nationwide service (oligopoly sources). We examine the economic and strategic characteristics of these diverse sources of rent and suggest some policy concerns about the emerging airline market structure. An interdisciplinary approach is taken because economic models normally assume that firms have identical factor costs and similar production opportunities. Yet much of our ability to frame the forces for change in the airline industry begins with the recognition that firms came into the deregulatory period with differing factor costs and differing locational endowments and, hence, differing production opportunities. Building on Porter'sl concept of strategic groups, we offer evidence that air carriers