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Market Structure, Countervailing Power and Price Discrimination: The Case of Airports

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  • Haskel, Jonathan
  • Iozzi, Alberto
  • Valletti, Tommaso

Abstract

We study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to airport landing fees where a number of interesting policy questions have arisen. For example, what is the impact of joint ownership of airports? Does airline countervailing power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential prices to airlines? Our major findings are: (a) an increase in upstream concentration or in the substitutability between airports always increases the landing fee; (b) the effect of countervailing power, via an increase in downstream concentration, typically lowers landing fees, but depends on the competition regime between airlines and whether airports can price discriminate: airline concentration reduces the landing fee when downstream competition is in quantities, but if downstream competition is in prices landing fees fall only where airports cannot discriminate. Furthermore, only in a specific case (Bertrand competition, uniform landing fees and undifferentiated goods) will lower fees pass through to consumers. (c) With Cournot competition, uniform landing fees are always higher than discriminatory fees, while the reverse is true with Bertrand competition.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8280.

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Date of creation: Feb 2011
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Handle: RePEc:cpr:ceprdp:8280

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Keywords: Airlines; Airports; Countervailing power; Landing fees;

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References

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  1. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-35, August.
  2. De Borger, Bruno & Van Dender, Kurt, 2006. "Prices, capacities and service levels in a congestible Bertrand duopoly," Journal of Urban Economics, Elsevier, vol. 60(2), pages 264-283, September.
  3. Eric Pels & Erik Verhoef, 2003. "The Economics of Airport Congestion Pricing," Tinbergen Institute Discussion Papers 03-083/3, Tinbergen Institute.
  4. Barrett, Sean D, 2000. "Airport competition in the deregulated European aviation market," Journal of Air Transport Management, Elsevier, vol. 6(1), pages 13-27.
  5. Starkie, David, 2002. "Airport regulation and competition," Journal of Air Transport Management, Elsevier, vol. 8(1), pages 63-72.
  6. Clifford Winston, 2009. "Lessons from the U.S. Transport Deregulation Experience for Privatization," OECD/ITF Joint Transport Research Centre Discussion Papers 2009/20, OECD Publishing.
  7. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
  8. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
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Cited by:
  1. Noriaki Matsushima & Kazuhiro Takauchi, 2013. "Port Privatization in an International Oligopoly," ISER Discussion Paper 0864, Institute of Social and Economic Research, Osaka University.
  2. Pavlyuk, Dmitry, 2012. "Airport Benchmarking and Spatial Competition: a Critical Review," MPRA Paper 43391, University Library of Munich, Germany.

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