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Effects of Airport Concession Revenue Sharing on Airline Competition and Social Welfare

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  • Xiaowen Fu
  • Anming Zhang
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    Abstract

    This paper studies the competitive and welfare implications when an airport offers airlines the option of sharing its concession revenue. By studying a non-congested airport whose aeronautical charge is regulated, we find that revenue sharing allows the airport and airlines to internalise a positive demand externality between aeronautical services and concession services, which may improve welfare. However, revenue sharing may cause a negative effect on airline competition. An airport may strategically share the revenue with its dominant airlines, which can further strengthen these firms' market power. Such exclusive revenue sharing may or may not improve welfare. Implications for a general airport-airline vertical relationship are discussed. © 2010 LSE and the University of Bath

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    Bibliographic Info

    Article provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy (JTEP).

    Volume (Year): 44 (2010)
    Issue (Month): 2 (May)
    Pages: 119-138

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    Handle: RePEc:tpe:jtecpo:v:44:y:2010:i:2:p:119-138

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    Web page: http://www.bath.ac.uk/e-journals/jtep

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    Cited by:
    1. Fu, Xiaowen & Homsombat, Winai & Oum, Tae H., 2011. "Airport–airline vertical relationships, their effects and regulatory policy implications," Journal of Air Transport Management, Elsevier, vol. 17(6), pages 347-353.
    2. Czerny, Achim I., 2013. "Public versus private airport behavior when concession revenues exist," Economics of Transportation, Elsevier, vol. 2(1), pages 38-46.
    3. Fu, Xiaowen & Zhang, Anming & Lei, Zheng, 2012. "Will China’s airline industry survive the entry of high-speed rail?," Research in Transportation Economics, Elsevier, vol. 35(1), pages 13-25.
    4. Starkie, David, 2012. "European airports and airlines: Evolving relationships and the regulatory implications," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 40-49.
    5. Ha, Hun-Koo & Wan, Yulai & Yoshida, Yuichiro & Zhang, Anming, 2013. "Airline market structure and airport efficiency: Evidence from major Northeast Asian airports," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 32-42.
    6. 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.
    7. Kunter, Marcus, 2012. "Coordination via cost and revenue sharing in manufacturer–retailer channels," European Journal of Operational Research, Elsevier, vol. 216(2), pages 477-486.

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