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Market power of hub airports: The role of lock-in effects and downstream competition

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Author Info

  • Florian Allroggen

    ()
    (Institute of Transport Economics, Muenster)

  • Robert Malina

    ()
    (Institute of Transport Economics, Muenster)

Abstract

In this paper we develop a model of hub competition, which includes duopolistic Bertrand competition on the downstream market in order to analyze the incentives of hub airports to exploit market power in the transfer passenger market. We find evidence that downstream competition limits hub market power and moreover, that there are incentives for a hub airport and its respective network carrier to optimize profits of the overall network jointly. Therefore, strict economic regulation of the business relationship between hub airports and their respective network carrier is rendered unnecessary. Regulators should focus on supporting long-term profit sharing contracts of network carriers and hub airports or other contractual forms to ensure vertical cooperation.

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File URL: http://www.wiwi.uni-muenster.de/ivm/materialien/forschen/veroeffentlichungen/paper15.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Institute of Transport Economics, University of Muenster in its series Working Papers with number 15.

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Length: 16 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:mut:wpaper:15

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Keywords: Airports; Regulation; Hub Competition; industrial organization;

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