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Price regulation of airports: principles with Australian applications

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Author Info

  • Forsyth, Peter

Abstract

This paper analyses the various issues that are likely to arise with price regulation of privately owned airports. It begins with a brief background on Australian airports, and a review of regulatory experience elsewhere. Issues which can create problems for price regulation include congestion, noise and other externalities, quality degradation and underinvestment, and the choice of the initial price level. Price regulation limits the use of prices as rationing devices where congestion is present. Efficient handling of congestion can be reconciled with price caps if the regulator determines the appropriate congestion/capacity trade off, and supervises allocation of slots, e.g. through auctions or creating a market for slots. Noise externalities can be handled through noise charges set by a regulator who may also be called upon to resolve capacity/noise trade offs. Resolving the problem of quality degradation and underinvestment is inherently difficult, and may need to involve active participation in investment decisions by the regulator and airlines. The difficulties of setting initial price levels arise from conflicts in ensuring that existing assets are utilised efficiently, and that prices give efficient signals for future investment. Regulatory design issues, dealing with whether pure price caps or mixed regulatory rules are superior, are examined in the airport context. The paper concludes with a brief examination of the price regulatory regime as announced by the Australian government.

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Bibliographic Info

Article provided by Elsevier in its journal Transportation Research Part E: Logistics and Transportation Review.

Volume (Year): 33 (1997)
Issue (Month): 4 (December)
Pages: 297-309

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Handle: RePEc:eee:transe:v:33:y:1997:i:4:p:297-309

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Related research

Keywords: airports price-caps regulation congestion noise externalities investment incentives quality regulation;

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Citations

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Cited by:
  1. Wei, Wenbin, 2006. "Impact of landing fees on airlines’ choice of aircraft size and service frequency in duopoly markets," Journal of Air Transport Management, Elsevier, vol. 12(6), pages 288-292.
  2. Li, Sui-Ling, 2014. "The cost allocation approach of airport service activities," Journal of Air Transport Management, Elsevier, vol. 38(C), pages 48-53.
  3. Martin Iltis, 2010. "A brief overview of airport regulation in Europe," Ekonomika a Management, University of Economics, Prague, vol. 2010(3).
  4. Betancor, Ofelia & Rendeiro, Robert, 1999. "Regulating privatized infrastructures and airport services," Policy Research Working Paper Series 2180, The World Bank.
  5. Madas, Michael A. & Zografos, Konstantinos G., 2010. "Airport slot allocation: a time for change?," Transport Policy, Elsevier, vol. 17(4), pages 274-285, August.
  6. Marques, Rui Cunha & Brochado, Ana, 2008. "Airport regulation in Europe: Is there need for a European Observatory?," Transport Policy, Elsevier, vol. 15(3), pages 163-172, May.
  7. Basso, Leonardo J. & Zhang, Anming, 2010. "Pricing vs. slot policies when airport profits matter," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 381-391, March.
  8. Basso, Leonardo J., 2008. "Airport deregulation: Effects on pricing and capacity," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 1015-1031, July.
  9. Rui Cunha Marques & Ana Oliveira-Brochado, 2007. "Comparing Airport regulation in Europe: Is there need for a European Regulator?," FEP Working Papers 259, Universidade do Porto, Faculdade de Economia do Porto.

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