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A new era for airport regulators through capacity investments

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  • Martín, Juan Carlos
  • Pilar Socorro, M.
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    Abstract

    Private and public airports' optimal actions may not coincide. While private airports usually pursue profit maximization, publicly owned airports look for maximum social welfare. Thus, the prices charged by private airports may differ from the socially optimal charges and public intervention may be needed. In this paper, we analyze airport charges when an increase in frequency produces positive or negative externalities and carriers have market power. We use the methodology of game theory to show that there may exist a level of capacity for which private and social objectives coincide, so no price regulation is needed. Thus, the usual role of regulators and planners could be modified in order to decide the appropriate capacity investments for which airport regulation is no longer necessary.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 43 (2009)
    Issue (Month): 6 (July)
    Pages: 618-625

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    Handle: RePEc:eee:transa:v:43:y:2009:i:6:p:618-625

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    Keywords: Private airport Capacity investment Airport charges Game theory;

    References

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    1. Forsyth, Peter, 2003. "Regulation under stress: developments in Australian airport policy," Journal of Air Transport Management, Elsevier, vol. 9(1), pages 25-35.
    2. Panzar, John C, 1979. "Equilibrium and Welfare in Unregulated Airline Markets," American Economic Review, American Economic Association, vol. 69(2), pages 92-95, May.
    3. Carlin, Alan & Park, Rolla Edward, 1970. "Marginal Cost Pricing of Airport Runway Capacity," American Economic Review, American Economic Association, vol. 60(3), pages 310-19, June.
    4. Brueckner, Jan K., 2005. "Internalization of airport congestion: A network analysis," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 599-614, September.
    5. Zhang, Anming & Zhang, Yimin, 2003. "Airport charges and capacity expansion: effects of concessions and privatization," Journal of Urban Economics, Elsevier, vol. 53(1), pages 54-75, January.
    6. Youdi Schipper & Piet Rietveld & Peter Nijkamp, 1998. "Deregulation and Schedule Competition in Simple Airline Networks," ERSA conference papers ersa98p205, European Regional Science Association.
    7. Brueckner, Jan K., 2002. "Network Structure and Airline Scheduling," Working Papers 02-0112, University of Illinois at Urbana-Champaign, College of Business.
    8. Castells, Antoni & Sole-Olle, Albert, 2005. "The regional allocation of infrastructure investment: The role of equity, efficiency and political factors," European Economic Review, Elsevier, vol. 49(5), pages 1165-1205, July.
    9. Viauroux, Christelle, 2007. "Structural estimation of congestion costs," European Economic Review, Elsevier, vol. 51(1), pages 1-25, January.
    10. David Starkie, 2001. "Reforming UK Airport Regulation," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(1), pages 119-135, January.
    11. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
    12. Mohring, Herbert, 1972. "Optimization and Scale Economies in Urban Bus Transportation," American Economic Review, American Economic Association, vol. 62(4), pages 591-604, September.
    13. Tae Hoon Oum & Anming Zhang & Yimin Zhang, 2004. "Alternative Forms of Economic Regulation and their Efficiency Implications for Airports," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 38(2), pages 217-246, May.
    14. Zhang, Anming & Zhang, Yimin, 2006. "Airport capacity and congestion when carriers have market power," Journal of Urban Economics, Elsevier, vol. 60(2), pages 229-247, September.
    15. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    16. Brueckner, Jan K, 2002. "Internalization of airport congestion," Journal of Air Transport Management, Elsevier, vol. 8(3), pages 141-147.
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    Cited by:
    1. Adler, Nicole & Liebert, Vanessa, 2014. "Joint impact of competition, ownership form and economic regulation on airport performance and pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 92-109.
    2. Adler, Nicole & Gellman, Aaron, 2012. "Strategies for managing risk in a changing aviation environment," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 24-35.
    3. Ishii, Masahiro & Lee, Paul Tae-Woo & Tezuka, Koichiro & Chang, Young-Tae, 2013. "A game theoretical analysis of port competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 92-106.
    4. Socorro, M. Pilar & Betancor, Ofelia, 2011. "Optimality of environmental policies in air transport markets and changes in the schedule delay: A theoretical approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(9), pages 850-860, November.
    5. Anna Bottasso & Maurizio Conti, 2010. "An Assessment on the Cost Structure of the UK Airport Industry: Ownership Outcomes and Long Run Cost Economies," Working papers 13, Former Department of Economics and Public Finance "G. Prato", University of Torino.

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