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Vertical Agreements Between Airports And Carriers

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Author Info

  • Tiziana D'Alfonso

    (Department of Economics and Technology Management, University of Bergamo Viale Marconi 5 - 24044 Dalmine (BG), Italy)

  • Alberto Nastasi

    ()
    (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

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    Abstract

    This paper investigates vertical contracts between airports and airlines, in the context of two competing facilities and three different types of agreements. The downstream market consists in a route operated by one leader and n-1 follower competing à la Stackelberg in each airport. In this sense, the paper adds to literature as it considers the issue of vertical contracts both in the airports competition and airlines competition. We develop a multistage facility-rivalry game where each airport and the respective dominant airline decide whether to enter into a contract and, if so, which one to engage in. In this framework, we investigate the Nash equilibrium to analyse the incentives for vertical contracts: we find that the airport and the dominant airline have incentive to collude in each facility. Nevertheless, the equilibrium is not efficient in terms of social welfare, so that there is a misalignment between private and social incentives

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    File URL: http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/wpaper/2010-19.pdf
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    Bibliographic Info

    Paper provided by Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza" in its series DIS Technical Reports with number 2010-19.

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    Date of creation: 2010
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    Handle: RePEc:aeg:wpaper:2010-19

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    Keywords: vertical contracts; airports competition; airlines competition;

    References

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    1. Basso, Leonardo J., 2008. "Airport deregulation: Effects on pricing and capacity," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 1015-1031, July.
    2. Barbot, Cristina, 2009. "Airport and airlines competition: Incentives for vertical collusion," Transportation Research Part B: Methodological, Elsevier, vol. 43(10), pages 952-965, December.
    3. Starkie, David, 2002. "Airport regulation and competition," Journal of Air Transport Management, Elsevier, vol. 8(1), pages 63-72.
    4. Zhang, Anming & Fu, Xiaowen & Yang, Hangjun (Gavin), 2010. "Revenue sharing with multiple airlines and airports," Transportation Research Part B: Methodological, Elsevier, vol. 44(8-9), pages 944-959, September.
    5. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2005. "Network competition - the co-existence of hub-and-spoke and point-to-point," ERSA conference papers ersa05p703, European Regional Science Association.
    6. David Starkie, 2008. "The Airport Industry in a Competitive Environment: A United Kingdom Perspective," OECD/ITF Joint Transport Research Centre Discussion Papers 2008/15, OECD Publishing.
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