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Airport capacity and congestion pricing with both aeronautical and commercial operations

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  • Zhang, Anming
  • Zhang, Yimin
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    Abstract

    In this paper, we study airport decisions on pricing and capacity investment with both aeronautical and concession operations. In addition, the airport under consideration is serving air carriers who have market power. We find that a profit-maximizing airport would over-invest in capacity in the sense that the marginal (social) benefit of capacity is smaller than the marginal (social) cost. This tendency of overinvestment still holds when the private airport is under the regulatory constraint of cost recovery in its aeronautical operation (the dual-till regulation). We also find that the capacity investment by a public airport will be socially efficient in the sense that the marginal benefit of capacity is equal to the marginal cost of capacity. However, somewhat surprisingly, the capacity investment of the public airport will be inefficient if it is under regulatory constraints. Specifically, the airport will also over-invest in capacity, whether it is under a single-till regulation or a dual-till regulation. Finally, it is noteworthy that the inefficiency in airport investment is driven by the interaction between the airport and the carriers who have market power.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

    Volume (Year): 44 (2010)
    Issue (Month): 3 (March)
    Pages: 404-413

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    Handle: RePEc:eee:transb:v:44:y:2010:i:3:p:404-413

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    Related research

    Keywords: Airport charges Capacity investment financing Commercial revenue Regulation Market power;

    References

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    1. Daniel, Joseph I. & Harback, Katherine Thomas, 2008. "(When) Do hub airlines internalize their self-imposed congestion delays?," Journal of Urban Economics, Elsevier, vol. 63(2), pages 583-612, March.
    2. 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.
    3. Jan K. Brueckner & Erik T. Verhoef, 2009. "Manipulable Congestion Tolls," Working Papers 080915, University of California-Irvine, Department of Economics.
    4. Brander, James A. & Zhang, Anming, 1993. "Dynamic oligopoly behaviour in the airline industry," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 407-435, September.
    5. Jan K. Brueckner, 2002. "Internalization of Airport Congestion: A Network Analysis," CESifo Working Paper Series 756, CESifo Group Munich.
    6. Zhang, Anming & Zhang, Yimin, 1997. "Concession revenue and optimal airport pricing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(4), pages 287-296, December.
    7. Basso, Leonardo J. & Zhang, Anming, 2007. "Congestible facility rivalry in vertical structures," Journal of Urban Economics, Elsevier, vol. 61(2), pages 218-237, March.
    8. Achim Czerny, 2006. "Price-cap Regulation of Airports: Single-till Versus Dual-till," Journal of Regulatory Economics, Springer, vol. 30(1), pages 85-97, 07.
    9. Steven A. Morrison & Clifford Winston, 2007. "Another Look at Airport Congestion Pricing," American Economic Review, American Economic Association, vol. 97(5), pages 1970-1977, December.
    10. Jan K. Brueckner & Kurt Van Dender, 2007. "Atomistic Congestion Tolls at Concentrated Airports? Seeking a Unified View in the Internalization Debate," CESifo Working Paper Series 2033, CESifo Group Munich.
    11. Pels, Eric & Verhoef, Erik T., 2004. "The economics of airport congestion pricing," Journal of Urban Economics, Elsevier, vol. 55(2), pages 257-277, March.
    12. 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.
    13. 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.
    14. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    15. 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.
    16. Daniel, Joseph I, 1995. "Congestion Pricing and Capacity of Large Hub Airports: A Bottleneck Model with Stochastic Queues," Econometrica, Econometric Society, vol. 63(2), pages 327-70, March.
    17. Ian Jones & Ivan Viehoff & Phillipa Marks, 1993. "The economics of airport slots," Fiscal Studies, Institute for Fiscal Studies, vol. 14(4), pages 37-57, November.
    18. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
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    Citations

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    Cited by:
    1. Mantin, Benny, 2012. "Airport complementarity: Private vs. government ownership and welfare gravitation," Transportation Research Part B: Methodological, Elsevier, vol. 46(3), pages 381-388.
    2. 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.
    3. Lin, Ming Hsin, 2013. "Airport privatization in congested hub–spoke networks," Transportation Research Part B: Methodological, Elsevier, vol. 54(C), pages 51-67.
    4. Czerny, Achim I., 2013. "Public versus private airport behavior when concession revenues exist," Economics of Transportation, Elsevier, vol. 2(1), pages 38-46.
    5. Hangjun Yang & Anming Zhang, 2011. "Price-cap regulation of congested airports," Journal of Regulatory Economics, Springer, vol. 39(3), pages 293-312, June.
    6. Tomáš Buus, 2011. "Sharing Cost of Shared Services Centre," European Financial and Accounting Journal, University of Economics, Prague, vol. 2011(4), pages 49-59.
    7. Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2013. "Demand uncertainty and airport capacity choice," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 91-104.
    8. repec:aeg:report:2014-4 is not listed on IDEAS
    9. Valentina Bracaglia & Tiziana D'Alfonso & Alberto Nastasi, 2014. "Multiproduct airport competition and e-commerce strategies," DIAG Technical Reports 2014-04, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".

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