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Airport Competition in Two-sided Markets

Author

Listed:
  • Xi Wan

    (Nanjing Audit University, China)

  • Benteng Zou

    (CREA, Université du Luxembourg)

Abstract

This paper examines the importance of commercial revenue on optimal airport charges in Hotelling type duopoly airports under a two-sided market framework with two complementary services-concession and aeronautical operations. Each airport sets commercial and landing charges and serves a single airline. The airport- airline bundle competes for leisure and business passengers. The setting of landing charges under different regulatory regimes is investigated. We demonstrate that in the leisure travel market, which ignores schedule delay cost, the optimal landing fee is invariant to the regulatory scheme, and concession revenue is determined by an airports home market size. In the business travel market, the optimal landing charge is smaller if concession revenue is included in setting the landing fee than if it is not included. In the former case, increasing passenger volume does not guarantee increases in airports’ aeronautical revenue, and a negative impact may exist if the weight of concession profit out of total profit is small.

Suggested Citation

  • Xi Wan & Benteng Zou, 2020. "Airport Competition in Two-sided Markets," DEM Discussion Paper Series 20-01, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:20-01
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    References listed on IDEAS

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    More about this item

    Keywords

    Airport competition; airport regulation; two-sided markets; landing fee; commercial charge.;
    All these keywords.

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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