The study is motivated by two seemingly contradictory patterns observed in China's airline industry with prevalent airfare caps. On the one hand, airfares tend to be higher and thus airfare caps are more likely to be binding in routes operated by fewer airlines; but on the other hand, it is in these same routes where airfare caps are more likely to be deregulated. To explain this apparent paradox, we build a simple theoretical model, which derives distinctive predictions from the public interest theory versus the capture theory of regulation. When empirically testing the model, we find more su...