Market structure, countervailing power and price discrimination: the case of airports
AbstractWe study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to bargained 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, 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 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. We also look at the incentives for airport expansion which raise quantities of passengers paying a given landing fee, but alters the nature of airline competition, which changes the landing fee.
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Bibliographic InfoPaper provided by Imperial College, London, Imperial College Business School in its series Working Papers with number 6857.
Date of creation: May 2011
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Other versions of this item:
- Haskel, Jonathan & Iozzi, Alberto & Valletti, Tommaso, 2013. "Market structure, countervailing power and price discrimination: The case of airports," Journal of Urban Economics, Elsevier, vol. 74(C), pages 12-26.
- Haskel, Jonathan & Iozzi, Alberto & Valletti, Tommaso, 2011. "Market Structure, Countervailing Power and Price Discrimination: The Case of Airports," CEPR Discussion Papers 8280, C.E.P.R. Discussion Papers.
- Jonathan Haskel & Alberto Iozzi & Tommaso Valletti, 2010. "Market Structure, Countervailing Power and Price Discrimination: The Case of Airports," CEIS Research Paper 177, Tor Vergata University, CEIS, revised 09 Dec 2010.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
- R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
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